Agenda and minutes

Surrey Pension Fund Committee
Friday, 14 September 2018 10.00 am

Venue: Committee Room C, County Hall, Kingston upon Thames, Surrey KT1 2DN. View directions

Contact: Sharmina Ullah  Email: sharmina.ullah@surreycc.gov.uk

Items
No. Item

44/18

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

45/18

MINUTES OF THE PREVIOUS MEETING: 8 JUNE 2018 pdf icon PDF 484 KB

46/18

DECLARATIONS OF INTEREST

    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.

    Minutes:

    There were none.

     

    -       The Committee received a presentation from the Local Authority Pension Fund Forum on corporate governance and corporate social responsibility.

     

47/18

QUESTIONS AND PETITIONS

    To receive any questions or petitions.

     

    Notes:

    1.  The deadline for Member’s questions is 12.00pm four working days before the meeting (7 September 2018).

    2.  The deadline for public questions is seven days before the meeting                (6 September 2018).

    3.  The deadline for petitions was 14 days before the meeting, and no petitions have been received.

     

    The Committee has received 3 public questions, questions will be tabled at the meeting alongside the responses.

     

    Minutes:

    1. The Committee received three questions from members of the public and responses were tabled at the meeting (attached as Annex 1).

     

    1. Mr Richard Essex submitted the following supplementary question in response:

     

    a.    ‘What is being done to challenge the energy incumbent we are invested in”.

     

    1. It was noted that a response to this supplementary question would be provided in writing after this meeting and attached to the minutes as Annex 2.

     

48/18

ACTION TRACKER AND FORWARD PLAN pdf icon PDF 56 KB

49/18

INVESTMENT MANAGER ISSUES, PERFORMANCE AND ASSET/LIABILITIES UPDATE

Minutes:

Declarations of interest:

 

None

 

Witnesses:

 

Neil Mason, Head of Pensions

 

Key points raised during the discussion:

 

  1. The Chairman agreed to take this item into Part 2 and exclude the public under Section 100(A) of the Local Government Act 1972, 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.

 

  1. Officers summarised the recommendations and the Committee agreed to share them in Part 1.

 

  1. It was highlighted that the global equity mandates in particular the global equity portfolio had become overweight (£75m) due to strong returns. Officers brought forward recommendations to rebalance the equity holdings.

 

  1. Officers assured the Committee rebalancing the portfolio was a risk management exercise and would reduce exposure in line with the ongoing strategy.

 

  1. It was highlighted that although the report indicated under performance amongst some fund managers this was quarter one and performance had gradually improved for quarter three.

 

Resolved:

 

The Pension Fund Committee;

 

  1. Noted the report

 

  1. Authorised officers to rebalance the equity holdings by disinvesting £50m from Marathon and £25m from Newton, and investing the £75m proceeds into Western MAC portfolio.

 

  1. Authorised officers to invest £20m of the current surplus internally managed cash into the MAC fund managed by Western. In combination with the above, this will bring that fund broadly into line with its target.

 

  1. Authorised officers to top-up the allocation from current surplus internally managed cash Baillie Gifford to bring it in line with its target. (c£10m).

 

  1. Noted the changes in the Asset Allocation Update (Investment Manager Issues – Annex 1) to now include 5% Private Equity Allocation Policy, in line with ISS.

 

50/18

PRIVATE EQUITY INVESTMENT: PERFORMANCE REVIEW pdf icon PDF 105 KB

    Purpose of the report: The Surrey Pension Fund has a commitment to invest 5% of the fund in private equity. This is achieved by investing in funds of funds and direct funds, managed by a number of private equity specialists.

     

    The Pension Fund Committee reviews the private equity strategy. This report is a review of the investment performance of the private equity portfolio.

     

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

     

    Key points raised during the discussion:

     

    1. The Chairman agreed to take this item into Part 2 and exclude the public under Section 100(A) of the Local Government Act 1972, 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.

     

    1. Officers summarised the recommendations and the Committee agreed to share them in Part 1.

     

    1. The Head of Pensions advised the Committee that to ensure that the Fund remained consistent to its target asset allocation of 5% to private equity, regular investments had to be considered.

     

    1. It was highlighted that Mercer had produced a report recommending a theme of private equity for new investment and suggested a list of defined characteristics that would be desirable.

     

    1. It was noted that future allocations would be made through the Border to Coast Partnership however in the meantime officers including the Fund’s advisors supported an additional commitment to a new fund during 2018.

     

    1. It was explained that a new commitment was time sensitive and Members were asked to delegate the selection of an appropriate strategy to the Chairman, Officers and advisors, with an update to be provided at the Committee’s next meeting on 16 November 2018.

     

    1. The Committee reviewed the fund status of fund managers and asked officers to explain the life cycle of investments. Officers clarified the following terms;
    • Value creation – all monies drawn
    • Investing – monies still being drawn
    • Distributing – monies fully drawn and being retuned
    • Fully realised – monies fully returned

     

    1. The Chairman advised that fund managers were monitored and were recently interviewed with the exception of Livingbridge and HgCapital.

     

     

    Resolved:

     

    The Pension Fund Committee;

     

    1. Noted the Fund’s Private Equity holdings, respective funds investment performance and review from the Fund’s investment consultant and independent investment adviser.

     

    1. Agreed the Fund continue to drawdowns of the existing private equity schemes, and consider new opportunities to the Pension Fund Committee for approval as and when they realise.

     

    1. Approved the recommendations of the Fund’s investment consultant, Mercer, to invest a further £30-£40m in new private equity fund with its defined characteristics.

     

    1. Approved for officers to work with Mercer and the independent advisor to research the market for appropriate private equity providers with these defined characteristics and bring a further recommendation to the Pension Fund Committee.

     

51/18

CORPORATE GOVERNANCE SHARE VOTING pdf icon PDF 100 KB

    Purpose of the report: This report provides a summary of the Fund’s share voting process in Q1 of 2018/19 (1 April 2018 to 30 June 2018). The report also includes a class action against BHP who is a firm Surrey had investment in.

     

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

     

    Key points raised during the discussion:

     

    1. The Committee were provided with a summary of the Fund’s share voting proves in Q1 of 2018/19 ( 1 April 2018 to 30 June 2018).

     

    1. The report also included a class action against BHP who is a firm Surrey had invested in.

     

    Actions/ further information to be provided:

     

    None

     

    Resolved:

     

    The Pension Fund Committee noted the report.

     

52/18

CASHFLOW ANALYSIS pdf icon PDF 80 KB

    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

     

    Key points raised during the discussion:

     

    1. The Committee received a cash-flow analysis for quarters four (2017/18) to quarter one (2018/19) (1 January 2018 – 30 June 2018).

     

    1. It was noted that the Surrey Pension Fund showed positive cash flow.

     

    Actions/ further information to be provided:

     

    None

     

    Resolved:

     

    The Committee noted the cash-flow position for quarters four and one.

     

53/18

VALUATION REPORT 2019 pdf icon PDF 80 KB

    Purpose of the report: This report provides an introduction to the triennial valuation including a draft project plan from the Fund actuary, Hymans Robertson.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

    Gemma Sefton, Hymans Robertson

     

    Key points raised during the discussion:

     

    1. The Committee welcomed the new Fund actuary representative from Hymans Robertson and thanked the former Fund actuary Barry McKay for his contribution.

     

    1. It was noted that the next triennial valuation was scheduled for 31 March 2019 and Hymans had produced a draft project plan with 6 months still available to refine it.

     

    1. The Committee received a presentation on the investment strategy and were asked to consider moving from one investment strategy for all employers to multiple strategies to better suit groups of similar employers.

     

    1. It was highlighted that this approach would produce better funding outcomes for employers, reduce risk to the fund, increase flexibility for setting funding plans, keep pace with other Funds in LGPS and would meet the increasing needs of employers.

     

    1. Hymans Robertson informed the Committee that Cheshire had completed one full cycle with this approach and it had worked well.

     

    1. Members were advised that although extra costs were involved in this complex work, assurance was given that these costs provided long term value.

     

    1. It was noted that there was no significant implications as there would be no material change for a long period of time.

     

    1. To support further understanding the Chairman asked officers to explain the current strategy and the proposed strategy in an update report for a future meeting.

     

    Actions/ further information to be provided:

     

    None

     

    Resolved:

     

    The Pension Fund Committee to receive an update report including a summary on the existing strategy and the proposed way forward.

     

54/18

GOVERNANCE REVIEW pdf icon PDF 90 KB

    Purpose of the report: As part of the governance and oversight of the pension fund, a regular review and update to the governance framework, policies and procedures is essential to ensure that the Fund is compliant with latest legislation, regulations and good practice.

     

    There have been significant developments in the LGPS over the past three years, which make a review of the governance of the Fund necessary and appropriate.

     

    This report sets out the scope and timetable for a governance review which, if approved by the Committee, will be jointly undertaken by officers and appointed specialist advisors.

     

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

     

    Key points raised during the discussion:

     

    1. It was highlighted that there have been several major changes within the LGPS and that these changes required a review of the governance of the Fund.

     

    1. The Committee noted that three sections of the proposed scope of the governance review; Overview, Background and Review.

     

    1. Under the Review section Members asked officers to consider a revision to ‘Decisions’ to include ‘prudent’.

     

    1. The Committee agreed that the Surrey Local Pension Board could monitor and review the progress of this work.

     

    Actions/ further information to be provided:

     

    None

     

    Resolved:

     

    The Committee agreed for officers to undertake a governance review and procure specialist governance advisors to assist with this review.

     

55/18

ANNUAL REPORT/ STATEMENT OF ACCOUNTS pdf icon PDF 77 KB

    Purpose of the report: The Pension Fund Committee role is to approve the Annual report which contains the audited statement of accounts together with other information about the Fund’s performance during 2017/18. The annual report is included in Annex 1.

     

    The external auditor (Grant Thornton) has issued an unqualified opinion on the accounts and this is outlined in the Audit Findings for Surrey Pension Fund Report (Annex 2).

    1.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

    Mamon Zaman, Senior Accountant

     

    Key points raised during the discussion:

     

    1. The Committee noted the error reported under the membership section, officers were asked to amend David Mansfield political party to Conservatives.

     

    1. Officers highlighted further discrepancies on page 159, 262 and 264 and tabled revised copies at the meeting.

     

    1. Officers asked the Committee to consider using electronic copies of the Annual report/ Statement of Account at future meetings to support the Council’s bid to reduce the reliance on paper.

     

    1. The Committee agreed to add a recommendation to commend the Pension Fund team’s performance this current year.

     

    Actions/ further information to be provided:

     

    None

     

    Resolved:

     

    The Pension Fund Committee,

     

    a)    Noted and approved the Annual Report for publication subject to audit approval.

     

    b)    Noted the contents of the ‘External Audit Findings for Surrey Pension Fund’ Report which reviewed the Pension Fund Statement of Accounts 2017/18.

     

    c)    Noted the Letter of Representation with regards to the Surrey Pension Fund Statement of Accounts.

     

    d)    Recognised the good work carried out by the Pension Fund team under the Head of Pensions.

     

56/18

LOCAL PENSION BOARD REPORT pdf icon PDF 110 KB

    Purpose of the report: This report is a summary of administration and governance issues reviewed by the Local Pension Board at its meeting 25 July 2018 that need to be brought to the attention of the Pension Fund Committee.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Nick Harrison, Chairman of the Surrey Local Pension Board

    Clare Chamber, Pensions Service Delivery Manager

     

    Key points raised during the discussion:

     

    1. The Committee welcomed the new Pensions Service Delivery Manager to the meeting. The Local Pension Board Chairman congratulated the Chairman of the Committee on his appointment as the newly elected Vice-Chairman on the Border to Coast Pension Partnership (BCPP) Joint Committee.

     

    1. The lack of resource and employer data concerns were highlighted as issues faced by the service. There was a discussion around how work was being carried out to address these issues.

     

    1. It was noted that the Local Pension Board recommended a further review of the appropriateness of current “performance aspiration” and “tolerance” performance standard in an effort to introduce a target that would work best. The Pensions Service Delivery Manager highlighted that the service was also in the process of re-structuring teams to focus on improving these statistics.

     

    1. The Board recommended that the new risk of change in Section 151 Officer should be added to the register.

     

    1. There was a discussion around the Guaranteed Minimum Pension (GMP) reconciliation project and the Committee were recommended to obtain expert legal advice when deciding how to tackle returns.

     

    Actions/ further information to be provided:

     

    None

     

    Resolved:

     

    The Pension Fund Committee,

     

    a)    Considered the recommendations from the Local Pension Board in regards to the Administration Performance Report.

     

    b)    Updated the Local Pension Board on the current position regarding pension member representation in the BCPP governance structure.

     

    c)    Approved the recommendation of the Board that the new risk of change in Section 151 Officer should be added to the register.

     

    d)    Concluded that there were no reviews as to the compliance of particular cases, projects or processes that the Local Pension Board should undertake.

     

57/18

EXCLUSION OF THE PUBLIC

    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.

     

     

    PART TWO – IN PRIVATE

58/18

NATIONAL POOLING UPDATE

    Purpose of the report:The Border to Coast Pension Partnership (BCPP) 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 Surrey Pension Fund assets from quarter four in 2018.

     

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

     

    Key point raised during the discussion:

     

    1. The Chairman agreed to take this item into Part 2 and exclude the public under Section 100(A) of the Local Government Act 1972, 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.

     

    1. The Head of Pensions introduced the report by informing the Committee that the Border to Coast Pension Partnership (BCPP) had now launched and plans were underway to transition the Surrey Pension Fund portfolio of UK equity to the BCPP, subject to satisfying the “necessary conditions” outlined in Annex 1 attached to the report.

     

    1. It was noted that a due diligence meeting would take place on 3 October with Surrey Pension Fund Officers, Mercer and the independent advisor.

     

    1. Following the transition of the UK equity, the Head of Pension advised that the global mandate was the Committee’s next area of significant review.

     

    1. Members commented on paragraph 24 and asked the Head of Pensions to report on the information left out in error.

     

    Resolved:

     

    The Pension Fund Committee,

     

    a)    Noted the report and progress made towards satisfying the “necessary conditions” of governance required to enable the transition of the UK equity portion of the Surrey Pension Fund portfolio to the BCPP.

     

    b)    Reaffirmed the approval given at its meeting of 8 June 2018 to delegate authority to the Director of Finance, 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.

     

59/18

PUBLICITY OF PART 2 ITEMS

60/18

DATE OF NEXT MEETING