The minutes were approved as an accurate
record of the previous meeting.
56/19
DECLARATIONS OF INTEREST
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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.
The
Strategic Finance Manager (Pensions) informed Members on the work
the Fund were doing in conjunction with its governance consultant
Hymans Robertson on compliance and future proofing the Fund going
forward, in order to develop Phase III of the Fund’s
‘Good Governance’ report.
The
Chairman noted the importance of ‘skills and training’
within the Phase II Report, particularly the distinct separation
between responsibilities to the Pension Fund as Members of the
Committee and their responsibilities as councillors and
employer/employee representatives.
TheSenior Pensions
Finance Specialisthighlighted the progress
made by the five-year initiative, Climate Action 100+ which
operated across six different industries - not just fossil fuel
industries - to facilitate low carbon transition.
The Chairman referred to positive progress by the
largest steel manufacturer in the world,Arcelor Mittal in reducing its carbon usage and
Glennmont Partners’ recent
investment in a 36 megawatt onshore wind farm in
Italy.
RESOLVED:
The
Pension Fund Committee:
Reaffirmed that ESG Factors were fundamental to the Fund’s
approach, consistent with the Mission Statement through;
Commending the outcomes achieved for quarter ending 30 September
2019 by Robeco in their Active
Ownership approach and the LAPFF in its Engagement with
multinational companies as at 31 September 2019.
Noting
the outcomes in relation to ESG issues, through Surrey Pension
Fund’s share voting for the quarter ending 30 September
2019.
Supporting the work carried out by Climate Action 100+ in their
engagement on ESG issues, and Darwin on their strong Environmental
Credentials.
Nick Harrison - Chairman of the Local Pension
Board
John Smith -Pension
Governance and Employer Manager
Key points raised in the discussion:
TheChairman of the Local
Pension Board noted the recommendations of the report to the
Committee and added that monitoring the Key Performance Indicators
(KPIs) entailed a substantial amount of work
due to a backlog of cases and the difficulty in measuring old cases
within that backlog.
TheStrategic Finance Manager
(Pensions) explained that in the past thePension Administration Strategy was not an accurate measure
towards improvement; the most recent revision addressed that as the
Pension Fund team were more confident that the Pension
Administration team could meet the KPIs.
The
Chairman of the Local Pension Board noted that the programme of
work was substantive, but adequate training resources for the Local
Pension Board remained an issue and in response, the Chairman of
the Committee stressed that the Committee would help with
that.
The
Chairman of the Local Pension highlighted the red risk affecting
staff retention within theAdministration
Risk Register on the move of County Hall. In response to a
Member’s query on the risk grading, he stated
that the red risk was graded before confirmation of the move to
Woking. He acknowledged that the inherent risk could move from red
to amber and the residual risk would remain at amber.
TheStrategic Finance
Manager (Pensions) added the Pension Administration team could
workflexibly from other sites but staff
retention was being addressed in consultation with the Chief
Executive.
RESOLVED:
The Pension Fund Committee:
1. Noted
the progress of the administration service improvement plan II
(SIP2).
2.
Approved the draft Administration Strategy and allowed for a
consultation with scheme employers.
3.
Approved the draft Service Specification between the Pension Fund
and the Pension Administration service.
4.
Approved the proposed change to the risk register, as noted in the
Risk Register section of the report.
5. Noted
the minutes of the Local Pension Board meeting of 24 October
2019.
Nick Harrison - Chairman of the Local Pension
Board
Key points raised in the discussion:
The Strategic Finance Manager (Pensions)
informed Members of thesignificant changes
from 2016 to the Funding Strategy Statement (FSS):
·That colleges and higher education institutions were
affected due to the decrease in their recovery periods –
similar to private companies.
·The previous distinction between multi-academy and
single academy trusts had been removed.
·Actuarial improvements were not expected to return
to employers due to the McCloud judgement.
·The early cessation of admission bodies had been
included.
·Tailored employer investment strategies would be
brought to the Committee in March 2020 for approval, the Fund was
working on its draft strategies with its investment consultant,
Mercer and its governance consultant, Hymans Robertson prior to
consultation with scheme employers.
The
Chairman of the Local Pension Board was pleased that the Surrey
Pension Fund were moving away from a single investment strategy as
that issue had been raised by the Local Pension Board.
The
Vice-Chairman queried whether officers could advise on anything
controversial in the report, in response theStrategic Finance Manager (Pensions) noted
thatofficers were already in consultation to
explore solutions to the issues affecting colleges and higher
education institutions - those issues were however not material to
the Fund.
RESOLVED:
The
Pension Fund Committee:
Approved the draft Funding Strategy Statement (FSS)
to enable it to be shared with scheme employers in a 30 day
consultation.
In accordance with Fund’s
funding objectives in the 2019/20 Business Plan.
Minutes:
Witnesses:
Ayaz Malik -Pensions Finance
Specialist
Clare Chambers - Pensions Service
Delivery Manager
Key points raised in the discussion:
The Pensions Finance Specialist explained that
thecontributions received and net cash-flow
were significantly higher in quarter two than quarter
one.
The Chairman stressed that the six month period
between quarters did not generate a detailed trend so suggested a
cash-flow analysis covering an eighteen month period. TheStrategic Finance Manager (Pensions)
responded that amore comprehensive report on
the benefits paid, the contributions received and the Fund’s
cash-flow scenario with illiquid investments would be provided to
the Committee next year.
The Chairman queried the large increase in
deferred members between quarter one and quarter two and in
response thePensions Service Delivery
Manageracknowledged that the
approximately 3,000 difference in deferred members was due to the
backlog being processed and would continue to steadily increase as
well as the contributions from deferred pensions.
The Vice-Chairman suggested the
addition of a third recommendation to include more a detailed
cash-flow analysis over a longer period of time and specific
targets set in relation to the processing of the Fund’s
membership, the contributions received and benefits paid
out.
RESOLVED:
The
Pension Fund Committee:
1.Noted the cash-flow position for quarters one and
two.
2.Determined that no change was required to the
investment or funding strategy as a result of the current cash-flow
position.
Anthony Fletcher - Independent Advisor (MJ
Hudson)
Neil Mason - Strategic Finance Manager
(Pensions)
Steve Turner - Investment Consultant (Mercer)
Key points raised in the discussion:
TheSenior Pensions Finance
Specialistreported that the draft Strategic
Objectives identified by the Fund for its Investment Consultants
formed the basis of scoring upcoming tenders to employers -
March/April 2020.
The
Chairman questioned if the Strategic Objectives applied to the
Independent Advisor, in response the Independent Advisor stated
that the Strategic Objectives acted as a guideline for him and that
other local authorities had set objectives that mirrored their
Investment Consultants.
The
Strategic Finance Manager (Pensions)
explained that the Fund’s Investment Consultant was up
for retender next year with a review by the Competition Markets
Authority (CMA), which would be discussed in conjunction with the
Fund’s Independent Advisor.
The
Vice-Chairman sought clarification on the more detailed interaction
between the Committee and Fund with the Independent Consultants in
practice and how the Fund could be more informed on its more
technical applications. In response,
the Chairman proposed that the Committee add to the recommendation
its request for further development of the draft Strategic
Objectives to set out more specific interactions between the Fund
and its Investment Consultants.
The Investment Consultant (Mercer) informed Members
that from atechnical perspective the
Committee were asked to approve the draft Strategic Objectives
which would then be sent to the Fund’s Investment Consultants
(Mercer). That would then allow the Fund to accept advice from
Mercer from January 2020 in order to develop those Strategic
Objectives further.
RESOLVED:
The
Pension Fund Committee:
Approved the Draft Strategic Objectives for
Investment Consultants of the Fund in line with CMA
Requirements.
Anthony Fletcher - Independent Advisor (MJ Hudson)
Andrew Stone -Border to
Coast
Key points raised in the discussion:
The
Chairman commented that although the Fund was working closely with
the Border to Coast Pension Partnership (BCPP), the Fund had its
own clear view of Responsible Investment. The Strategic Finance
Manager (Pensions) echoed the importance of the Fund’s close
relationship with BCPP as it was crucial to the Fund’s whole
investment policy.
The
Strategic Finance Manager (Pensions) explained that the
BCPP’s Responsible Investment Policy 2020 and Corporate
Governance and Voting Policy represented the joint agreement with
the twelve partner funds. In addition to those documents, Surrey
Pension Fund identified the need for a Committee sub-group on the
Fund’s own approach towards Responsible Investment - as
indicated in the third recommendation. The sub-group would clearly
express the Fund’s core beliefs on Environmental, Social and
Governance issues (ESG) and Members of the Committee had been
invited to be a part of it.
The
Chairman questioned how far the Fund would go on the Spectrum of
Capital with the use of its capital to deliver Responsible
Investment. In response, the Strategic Finance Manager (Pensions)
commented that an independent Engagement Specialist to support the
work of the sub-group and measure the Fund’s performance
against the United Nations Sustainable Development Goals (SDGs) was
being employed and the Fund were committed to ensuring it addressed
Environmental, Social and Governance issues (ESG).
The
Vice-Chairman expressed unease with the differing definitions of
Responsible Investment within the Spectrum of Capital from
‘Traditional’ to ‘Philanthropic’ as it
categorised the traditional category as being irresponsible. The
other approach of mapping the Fund against the SDGs was useful but
only a handful of SDGs could align with the Fund’s investment
approach.
The
Independent Advisor noted that the Pensions for Purpose Director
would argue that a Pension Fund should not move beyond the fourth
SDG as that would exceed the Fund’s fundamental fiduciary
duty of ensuring sustainable financial returns not detrimental to
its beneficiaries.
The
representative from Border to Coast commented that policies on
Responsible Investment were broad church but it was good practice
to include ESG issues to ensure the management of risks and
sustainable long term returns.
RESOLVED:
The
Pension Fund Committee:
Noted
the results of the ShareAction survey
regarding the Fund’s approach to Responsible Investment and
Climate change.
Approved
the revised BCPP Responsible Investment (RI) Policy 2020 and
Corporate Governance & Voting Guidelines 2020.
Approved
for a Committee sub-group to be convened to develop the
Fund’s RI Approach (and
define RI). To include, but not limited to:
·The Fund’s positioning of Responsible
Investment in its Core Investment Beliefs
·The Fund’s relationship with BCPP, more
specifically BCPP’s RI approach to the Fund’s pooled
assets
·The Fund’s RI approach to existing legacy
portfolios yet to be transitioned to BCPP
·The Fund’s RI approach to its Indexed Funds
currently held with Legal & General Investment Management
(LGIM)
That under Section 100(A) of the Local
Government Act 1972, the public be excluded from the meeting during
consideration of the following items of business on the grounds
that they involve the likely disclosure of exempt information under
the relevant paragraphs of Part 3 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 3 of Schedule 12A of the
Act.
66/19
INVESTMENT MANAGER ISSUES AND PERFORMANCE AND ASSET/LIABILITIES UPDATE
The Chairman noted that the report showed the summary of the
funding level for the most recent quarter and the rolling three
year performance, but that more information on how well investments
were performing and consistent statistics were needed going forward
to measure the Fund’sperformance
following transitioningto the BCPP. The
Strategic Finance Manager (Pensions) replied that investment
manager issues and performance updates of assets and liabilities
were shared with the BCPP. Surrey Pension Fund officers were also
working closely with the Performance Manager at BCPP to get clear
performance and management risk factors for future
years.
RESOLVED:
The
Pension Fund Committee agreed the recommendations outlined in the
Part 2 report.
Anthony Fletcher - Independent Advisor (MJ
Hudson)
Neil Mason - Strategic Finance Manager
(Pensions)
Key points raised in the discussion:
TheIndependent Advisorinformed the Committee thatasset diversification was extremely important for good returns
with less risk. He provided the Committee with examples of the
Private Market Funds that Surrey Pension Fund had investments
in.
In
response to a Member query on the illiquidity of the new Private
Credit class of assets and if the Fund was recommended to put more
money into Border to Coast than individual managers, the
Independent Advisor explained that it was beneficial to invest in
Private Credit taking advantage of to the opportunity for BCPP to
offer fee savings.
The Independent Advisoralso noted the
variability in return according to ‘vintage year’ and
that overall the long term strategy of investment in private equity
had proved beneficial.
In
response to a Member query on the Fund’s asset allocation of
Private Equity as of September 2019, the Independent Advisor noted
that there was a J-Curve effect. That meant that
returns took time and were often negative in
the early years as capital is paid out to make investments, cover
associated transaction costs and pay management fees.
RESOLVED:
The
Pension Fund Committee agreed the recommendations outlined in the
Part 2 report.
Mr Nick Harrison -
Chairman of the Local Pension Board
Steve Turner -
Investment Consultant (Mercer)
Key points raised in the discussion:
TheStrategic Finance Manager
(Pensions)reported that the Fund met all the necessary conditions before investment in the new
asset class of Private Debt.
The Chairman of the Local Pension Board queried the Fund’s
savings through pooling with the BCPP rather than using individual
managers. In response, the representative from Border to Coast
stated that it was too early to judge, but BCPP looked at legacy
fees with comparable mandates for fund launches. Compared to BCPP,
individual managers in the Private Market charged on assets
committed not invested and it would take a few years to assess cost
savings.
In
response to the Chairman of the Local Pension Board’s
question on where the money was kept between investments as it took
time to invest in Private Equity, the Strategic Finance Manager (Pensions) explained
thatmoney was kept in the Fund until it was
called upon.
The Strategic Finance Manager (Pensions) noted that
the Fund would have aclearer indication of
the Government’s direction of travel in the New Year and that
the priority of pooling was to get enhanced risk-adjusted returns
with competitive transition and management charges across a wide
range of assets.
The representative from Border to Coast explained that from a
value perspective, BCPP would continue to work with the Pension
Fund team and the Independent Advisor to add useful capabilities
for the cash-flow management of future drawdowns and the
streamlining of the management process to reduce risks.
In
response to a Member question on whether there were greater risks
for the new asset class of Private Debt, the representative from
Border to Coast commented that although that asset class was
illiquid, the diversification of return sources and risk profiles
was advantageous.
TheInvestment Consultant
informed the Committee that thelong term
investment in illiquid assets such as Private Debt was no longer as
expensive or complicated as indicated by the Fund five years ago,
as a result of the Fund’s cost-efficient partnership with
Border to Coast.
The Strategic Finance Manager (Pensions) indicated
that he would share the PowerPointslides on
Private Debt presented at the recent BCPP Joint Committeetraining session for the Committee.
RESOLVED:
The
Pension Fund Committee agreed the recommendations outlined in the
Part 2 report.
Actions/further information to be provided:
The Strategic Finance Manager
(Pensions) will share the PowerPoint slideson Private Debtpresented at the recent
BCPP Joint Committee training session for the
Committee.
69/19
DATE OF NEXT MEETING
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The next meeting of the Surrey Pension Fund
Committee will be on 13 March 2020.
Minutes:
The
next meeting of the Surrey Pension Fund Committee will take place
on 13 March 2020.
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