To agree the minutes as a true record of the
meeting.
Minutes:
The Minutes were approved as an accurate
record of the previous meeting.
28/18
DECLARATIONS OF INTEREST
Share this item
All Members present are
required to declare, at this point in the meeting or as soon as
possible thereafter
(i)Any disclosable
pecuniary interests and / or
(ii)Other interests arising under the Code of Conduct in
respect of any item(s) of business being considered at this
meeting
NOTES:
·Members are reminded that they must not participate
in any item where they have a disclosable pecuniary interest
·As well as an interest of the Member, this includes
any interest, of which the Member is aware, that relates to the
Member’s spouse or civil partner (or any person with whom the
Member is living as a spouse or civil partner)
·Members with a significant personal interest may
participate in the discussion and vote on that matter unless that
interest could be reasonably regarded as
prejudicial.
1. The deadline for Member’s questions is
12.00pm four working days before the meeting (4 June
2018).
2. The deadline for public questions is seven days
before the meeting (1 June 2018).
3. The deadline for petitions was 14 days before the
meeting, and no petitions have been received.
Minutes:
Members of the public
noted the response to questions submitted which are attached to the
minutes as Annex A. The questioners asked the
following supplementary questions in response:
Cllr
Jonathan Essex, on behalf of Sarah Finch:Please can the Committee request the LAPFF confirm what
transition plans exist for oil and gas investments to a 1.5C
warming scenario and provide evidence that this approach has
delivered a reduction in carbon exposure to date.
Question
By Sally Elias:It was noted that other
comparable funds and organisations were looking at disinvestment in
fossil fuels. Does the Surrey Pension Fund invest in Suncor with
its tar sands interests and what does it take to convince the
Committee to take your funds out of such an environmentally
damaging business?
Question by Vicki Elcoate:I understand that Surrey CC Pension fund has
over £45m invested in BP. Are Pension Fund members aware that
BP holds nearly a 20% stake in Russian state oil company
Rosneft and sits on its board? This is
despite the Russian oil giant having one of the world's worst
records on safety and spills. It also no longer seems very sound in
terms of investment to have your pension fund associated with the
Russian regime. What does it take to convince the Board that the
fossil fuel business involves dirty money and it’s time to
get out?
Question by Janet Baker on behalf of Pat
Horitz:
On the question of fiduciary
responsibility, would the SPF committee bear in mind that the
increasing support for moving investments out of fossil fuels and
into Socially Responsible Investments and that investment in SRIs
is bringing healthy returns capable of outperforming conventional
investments?
e.Question by Stephen McDonald:I referred firstly to an extract from a LAPFF report
produced in conjunction with Carbon Tracker which states in
its’ introduction, “most oil companies seem to plan
their business on the assumption that the action on climate change
needed to deliver a 2deg C scenario will not emerge in the
foreseeable future” I
added, “the SPF know this only too well as the Shell website
reveals some 21 new fossil fuel extraction projects supported by c.
£ 60 million of Surrey Pension Fund
investments” My question was, “If we assume that the Pension Fund
Trustees supported by a range of different Pension professionals
are aware of the outcomes of their investment decisions, could the
committee tell me what is the environmental outcome of the £
130 million currently invested in the fossil fuel
industry?” It would make the point that an environmental outcome would be
expressed in environmental terms; temperature, flooding, extreme
weather events, sea level rise, ecosystem breakdown
etc. This question
was not answered in section 4 of the meeting (questions and
petitions) and was referred forward to the carbon asset exposure
review section. Nor was in answered in this section.
It was noted that a response to these
supplementary questions would be provided in writing after the
meeting and attached to ...
view the full minutes text for item 29/18
The forward plan and action tracker is
attached, detailing actions from previous meetings. The Board is
asked to review and provide comment as necessary.
Purpose of the report:The 2001 Myners Report
(later confirmed by the CIPFA/Myners
Principles) recommended that local authority pension funds approve
an annual business plan in respect of the objectives required for
the ensuing year.Business planning is
regarded as an important tool, assisting in the identification of
how service delivery can be maximised within resource constraints.
This report sets out the outturn of the annual business plan for
2017/18.
Purpose of the report: To
understand the Surrey County Council Pension Fund’s current
exposure to assets which are carbon intensive in their activities
and how a future reallocation of the Fund’s equities will
impact its current Carbon Asset exposure.
Minutes:
Declarations of
interest:
None
Witnesses:
Neil Mason, Head of
Pensions
Neil McIndoe, Trucost
Yohan Hill, Trucost
Key
points raised during the discussion:
Officers
introduced the report and a presentation from representatives from
Trucost was given to provide the
committee a breakdown of the carbon asset exposure of the
fund.
The
representatives from Trucost explained
that they had undertaken similar benchmarking work with 20 other
Local Government Pension Schemes (LGPS) to ascertain the risk of
climate change and carbon related assets. It was noted that all
data used was within two years of the current date to ensure
relevance.
Members
questioned the how Trucost calculated
carbon footprint of organisations invested in by the fund.
Trucost representatives explained that
emission rates disclosed by companies was used in calculations, but
noted that in cases where this data was not available, rates were
modelled using well established methodology.
Members
asked whether the carbon footprint of the final product of oil and
gas companies was included as part of the footprint. Trucost representatives noted that this was not
included but that the use of the end product was included in other
company footprints.
It was
noted that oil, gas and materials companies that were invested in
by the Surrey Pension Fund had a significant carbon apportionment
in the funds investments.
Members
queried whether the information presented by Trucost regarding carbon footprint impact could be
analysed alongside the performance of investments. Officers noted
that this comparison would be included as part of future Investment
Manager Reports to the Committee to allow analysis and determine
the appropriateness of the investments.
Members
questioned benchmarks relating to investment in high carbon
footprint industries and whether there was a potential for
increasing the thresholds for benchmarks to reduce investments in
high carbon footprint assets. Advisors noted that there were
different benchmarks that could be utilised to encourage this that
the service could employ.
Purpose of the report: The
Investment Strategy Statement of the Surrey Pension Fund currently
shows a target allocation of listed equities at 59.8% of the
portfolio.
The Fund is scheduled to begin transition of
its assets in to the Border to Coast (BCPP) asset pool in the
3rd-4th quarters of 2018, starting with UK
equities. In consideration of the appropriateness of Fund’s
asset allocation in line with this key transition date, an
investment strategy meeting was convened between the Chairman of
the Pension Fund Committee, Mercer, the Fund’s Independent
Advisor and officers on 19 January 2018.
As a result of this meeting Mercer produced
the Equity Strategy Forward and, at the
Pension Fund Committee meeting of 9 February 2018,
it was resolved by the Pension Fund Committee to
approve further work from Mercer, the
Fund’s Independent Advisor and officers to
consider the following, in accordance with the Equity Strategy
Forward plan:
·
the balance between UK and global equities;
·
the balance between passive and actively managed equities;
·
the allocation within the passive section of the portfolio, what
allocation should be made to the RAFI multi-factor index and
whether an allocation should be made to a low carbon equity
fund.
Further meetings to consider these agreed
areas were held between the Chairman of the Pension Fund Committee,
Mercer, the Fund’s Independent Advisor and officers on 17
April 2018 and 15 May 2018 and conclusions from these meetings
inform this report.
This strategic approach to managing the
portfolio will continue to be critical after assets begin to be
transitioned to BCPP and should be considered within the context of
this transition.
Minutes:
Declarations of
interest:
None
Witnesses:
Neil Mason, Head of
Pensions
Steve Mitchell, Mercer
Anthony Fletcher, Allenbridge
Key
points raised during the discussion:
Advisors noted that
the Committee was required to review the balance between Global and
UK equities, the allocation to RAFI and consider investments in low
carbon assets and any potential changes to the balance between
active and passive investments.
Advisors suggested
that the balance between active and passive investments should
remain as they were. It was noted that the weighting between active
and passive were similar in Surrey to other comparable
LGPS’s.
Advisors and officers
explained that the transfer of assets to the Border to Coast
Pensions Partnership (BCPP) made an equity review timely and that
it was important for the fund to consider long term strategy before
transfer.
It was noted that UK
equities were heavily weighted towards oil and gas companies and
that stock concentration was significantly higher in UK equities
than in global equities. Advisors noted that there was a proposal
to reduce UK equities to 20% of the allocation. It was also
suggested that the allocation would be actively managed by the
BCPP. Advisors noted that there was an agreement that UK equities
should be actively managed to maximise returns.
Advisors highlighted
that MSCI Low Carbon Target Index was the preferred low carbon
index.
Advisors suggested
that Trucost could undertake a peer analysis of comparable LGPS
funds to ascertain their investment in low carbon assets and gain
an indication on where the Surrey fund is in comparison with
these.
Members noted that
the SPFC could work to guide the BCPP towards investment in low
carbon assets by highlighting the issue as a key priority for the
fund.
Members questioned
advisors on equity protection and whether the next steps were
appropriate. Officers noted that the triggers were in place and
advisors suggested that protection be proceeded to stage three. It
was stressed that there was a continued strong rationale for equity
protection.
Resolved:
That the Pension Fund
Committee:
Approved
the reduction in UK equities in the portfolio from the current 46%
to 20%, all in the active portion of the portfolio.
Retained
the current balance in the equity portfolio of 38% passive and 62%
active.
Approved the balance within the passive portfolio to be 16%
global RAFI, 16% MSCI Global Low Carbon Target Index and 6%
emerging markets.
Approved
further work for officers, Mercer and the Independent Advisor to
consider the appropriate balance of the active global/regional
element of the equity portfolio and negotiate with BCPP to enable
this asset mix to be realised through the BCPP global or regional
sub fund offerings.
Noted
the progress on the downside equity protection
strategy.
34/18
INVESTMENT MANAGER ISSUES AND PERFORMANCE AND ASSET/LIABILITIES UPDATE
Purpose of the
report:This report is a summary of all
manager issues that need to be brought to the attention of the
Pension Fund Committee, as well as an update on investment
performance and the values of assets and liabilities.
Minutes:
Declarations of
interest:
None
Witnesses: Neil Mason, Head of
Pensions
Steve Mitchell, Mercer
Anthony Fletcher, Allenbridge
Sheila Little, Head of Finance
Key points raised in the discussion:
Advisors noted that
there were concerns with the performance of Aviva and that the
stated objective of 4% performance levels was unlikely to be
accomplished. It was suggested that the fund observe trend for the
foreseeable future.
Officers explained
that they required power of attorney from the committee to act in
the repatriation of Taiwanese Dollars (NTD) required the
authorisation of the Pension Fund Committee.
Members questioned
whether the service would review other overseas positions. Officers
noted that the service was discussing this issue with the custodian
and that an update would be brought back to the Committee when this
was concluded.
Resolved:
That the Pension Fund
Committee:
Noted
the report.
Authorised the Power of Attorney for Deloitte (Taiwan) to act on
the Surrey Fund behalf as a tax agent in Taiwan and where
appropriate in facilitating the repatriation of funds.
Purpose of the
report:The pension fund is required to
publish an investment strategy statement (ISS) as a result of new
investment regulations. It is a statutory requirement that the
Pension Fund Committee should approve and regularly review its
ISS.
Witnesses: Neil Mason, Head of
Pensions
Steve Mitchell, Mercer
Anthony Fletcher, Allenbridge
Sheila Little, Head of Finance
Key points raised in the discussion:
Members made note of
the Investment Strategy Statement and made no additional comments.
It was noted that there were no changes to the statement since the
last review.
Purpose of the
report:A cash-flow analysis allows the
Fund to ascertain a projection as to when benefit payments may
exceed income. This information can influence both the investment
and funding strategy.
Minutes:
Declarations of interest:
None
Witnesses: Neil Mason, Head of
Pensions
Steve Mitchell, Mercer
Anthony Fletcher, Allenbridge
Sheila Little, Head of Finance
Key points raised in the discussion:
Members questioned
the Quarter 3/4 total contributions and why they had significantly
increased. Officers explained thatthe income
management team had performed reconciliation of contribution
balance whereby they allocated cash in to appropriate months which
was sitting in the holding account and which had not been
undertaken in the previous quarters. It was also suggested that an
additional reason for high increase was as a result of some
employers paying the deficit contribution at the
year-end.
Officers noted that
they would bring quarterly reviews to the Committee to aid in the
review of trends.
Resolved:
That the Pension Fund
Committee:
Noted the cash-flow
position for quarters three and four.
Purpose of the
report:There is a large amount of
unutilised cash in the pension fund account which is earning
negligible returns. This cash could be better utilised investing
through fund managers to yield greater return. The strategy below
discusses this issue in detail.
Minutes:
Declarations of interest:
None
Witnesses: Neil Mason, Head of
Pensions
Steve Mitchell, Mercer
Anthony Fletcher, Allenbridge
Sheila Little, Head of Finance
Key points raised in the discussion:
Officers highlighted the report, noting thatunutilised cash could be better used by fund managers to yield
greater return. It was proposed that the fund set up
a collar for future investments of around £20 million.
Officers noted that they would seek advice as to where to invest
any cash that was outside of the £20 million
collar.
Resolved:
That the Pension Fund
Committee:
Approved the Pension Fund Internally Managed Cash
Strategy
Purpose of the
report:This report is a summary of
administration and governance issues reviewed by the Local Pension
Board at its meeting of 23 April 2018 that need to be brought to
the attention of the Pension Fund Committee.
Witnesses: Neil Mason, Head of
Pensions
Graham Ellwood, Vice-Chair Surrey Local Pension Board
Key points raised in the discussion:
The Vice-Chairman of
the Board explained that the Board had noted that the
administration performance had improved in the last
quarter.
The Vice-Chairman of
the Board noted with concern the administration and monitoring of
members in danger of breaching the annual or lifetime allowances
and stressed that the Board would be working to address this in
future. Officers noted that this was becoming a national issue and
that, while it was the individual’s responsibility to
resolve, that appropriate information should be provided to help
resolve the issue.
The Vice-Chairman of
the Board noted that the Board would be working with officers on
50/50 schemes to work on how to better publicise these schemes to
members of the fund as an option.
Members questioned
whether the Board had identified whether there were any substantial
gaps in the CIPFA benchmarking report. Officers noted that this
report undertook administrative benchmarking and that few other
funds participated in this, limiting the level of
results.
Officers explained
that there were recommended changes to the risk register which were
highlighted in the Board report, which would be implemented by the
service.
Resolved:
That the Pension Fund
Committee:
Approved the recommendations from the Local Pension Board in
regard to the Administration Performance Report.
Approved the recommendations from the Local Pension Board in
regard to the Risk Registers.
Witnesses: Neil Mason, Head of
Pensions
Steve Mitchell, Mercer
Anthony Fletcher, Allenbridge
Sheila Little, Head of Finance
Key points raised in the discussion:
Officers and advisors
introduced the report, noting that there were no significant
updates from the previous report presented to the Committee. There
were no additional comments by Members.
Resolved:
That the Pension Fund
Committee:
Noted the report.
40/18
EXCLUSION OF THE PUBLIC
Share this item
Recommendation:That under Section 100(A) of the Local Government Act
1972, the public be excluded from the meeting for the following
items of business on the grounds that they involve the likely
disclosure of exempt information under the relevant paragraphs of
Part 1 of Schedule 12A of the Act.
Minutes:
Resolved:That
under Section 100(A) of the Local Government Act 1972, the public
be excluded from the meeting for the following items of business on
the grounds that they involve the likely disclosure of exempt
information under the relevant paragraphs of Part 1 of Schedule 12A
of the Act.
Purpose of the report:The Border to Coast ambition is to establish a
fully regulated asset management company that is ready to accept
the transition of assets, as required by government. The working
timeline is expected to commence in transitioning assets from
quarter four in 2018.
Minutes:
Declarations of
interest:
None
Witnesses:
John Harrison,
Border to Coast Partnership
Key
points raised during the discussion:
A
discussion was had between representatives of the Border to Coast
Partnership and the Committee regarding the future transition of
the Surrey Pension Fund portfolio to the BCPP and the conditions
that were required relating to this transfer.
Resolved:
That the Committee:
1.Noted the report.
2.Approved in principle, the transition of the UK
equity portion of the Surrey Pension Fund portfolio to the Border
to Coast Pensions Partnership (BCPP) national pool when it has been
established, assuming that the “necessary conditions”
of governance have been satisfied.
3.Approved the delegation of authority to the Director
of Finance (Section 151 officer), in consultation with the Chairman
of the Pension Fund Committee, to transition the UK equity portion
of the Surrey Pension Fund portfolio to the BCPP, assuming that the
“necessary conditions” of governance have been
satisfied.
42/18
PUBLICITY OF PART 2 ITEMS
Share this item
To consider whether
the item considered under Part 2 of the agenda should be made
available to the Press and public.
Minutes:
The Committee concluded that the items referred to
in the Part Two annex should not be made available to the public at
this time.
43/18
DATE OF NEXT MEETING
Share this item
The next meeting of the Surrey Pension Fund
Committee will be on 14 September 2018.
PDF 114 KB