Agenda and minutes

Surrey Pension Fund Committee
Friday, 8 February 2019 10.00 am

Venue: Ashcombe Suite, County Hall, Penrhyn Road, Kingston upon Thames, Surrey, KT1 2DN

Contact: Vicky Hibbert 

Items
No. Item

1/19

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

2/19

MINUTES OF THE PREVIOUS MEETING: 16 NOVEMBER 2018 pdf icon PDF 110 KB

3/19

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.

4/19

QUESTIONS AND PETITIONS pdf icon PDF 97 KB

    To receive any questions or petitions.

     

    Notes:

    1.  The deadline for Member’s questions is 12.00pm four working days before the meeting (Monday 4 February 2018).

    2.  The deadline for public questions is seven days before the meeting (Friday 1 February).

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

     

    Minutes:

    Six questions were received from members of the public. Responses to these can be found as an annex to these minutes.

     

    Supplementary questions were asked from three members of the public and it was agreed that a response to the supplementary question from Pat Smith would be provided outside of the meeting.

     

    It was agreed that responses to submitted questions would be provided in advance of public meetings going forward.

5/19

PENSION FUND COMMITTEE FORWARD PLAN pdf icon PDF 50 KB

6/19

COMPANY ENGAGEMENT AND VOTING pdf icon PDF 144 KB

    Purpose of the report: This report is a summary of various Environmental Social & Governance (ESG) issues that the LAPFF, Robeco and Surrey Pension Fund have been involved in, for the attention of the Pension Fund Committee.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Jane Firth, Head of Responsible Investment, Border to Coast Pension Partnership

    Neil Mason, Head of Pensions

     

    Key points raised during the discussion:

     

    1. The Committee were informed that a resolution had been passed with BP shareholders in line with responsible investment and that a review of governance processes was being undertaken before further co-resolution with other funds would be put forward.
    2. There was a discussion around the impact of responsible investment and voting by shareholders if this was undertaken as a group through Border to Coast. It was explained that this would make a substantial difference and that by appointing Robeco there was much better access to chairmen and chief executive officers. Committee Members were also informed that the Surrey Pension Fund were part of a sub-group which would look at climate change going forward.
    3. The Board requested further detail on share voting and resolutions made on behalf of the Surrey Pension Fund be included in future update reports.

     

    Actions/ further information to be provided:

     

    The Board to receive further detail on share voting and resolutions made in future reports to the Committee.

     

    Resolved:

     

    1.     That the main findings of the report; the outcomes achieved for quarter ending 30 September 2018 by Robeco and LAPFF, by engaging with multinational companies on various Environmental, Social and Governance Issues (ESG) were noted by the Committee.

    2.     That the findings from Surrey Pension Fund’s share voting process for the quarter ending 31 December 2018 were noted.

     

7/19

LOCAL BOARD REPORT pdf icon PDF 88 KB

    Purpose of the report: This report is a summary of administration and governance issues reviewed by the Local Pension Board at its meeting of 17 January 2019 that need to be brought to the attention of the Pension Fund Committee.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Graham Ellwood, Vice-Chairman, Local Pension Board

    Neil Mason, Head of Pensions

     

    Key points raised during the discussion:

     

    1. The Committee received a summary of key highlights from the Local Pension Board Vice-Chairman from its meeting of 17 January 2019.

     

    1. It was noted that serious administration errors had been identified and that a four year strategic plan had now been put in place.

     

    1. The Committee were reminded that the Assistant Director for Business Operations had responsibility for the administration of pensions and that he was working with the Surrey Pension Fund to resolve the identified issues. 

     

    1. The Committee raised concerns that the data quality administration errors could have a financial impact and were informed that the Head of Pensions was not aware of an impact on the Pension Fund, but that the Fund had lodged a query with the Fund actuary, who will be able to provide clarity going forward with their assumptions.

     

    1. Members of the Committee queried how the profound weaknesses had not been detected sooner and were informed that the establishment of the Local Pension Board had been a key factor in identifying these working alongside Internal Audit.

     

    1. It was requested that a detailed report be presented to the June meeting of the Surrey Pension Fund.

     

    Actions/ further information to be provided:

     

    A report with further detail on the identified issues be presented to the next meeting of the Surrey Pension Fund Committee in June 2019.

     

    Resolved:

     

    That the Pension Fund Committee;

     

    1.     Noted the report and particularly issues with pensions administration.

    2.     Approved the following changes to the Fund risk register:

    ·        Amendments to the following risks, chiefly to reflect updates in regards to Border to Coast:

    ·        1-2, 4-8, 11, 13-15, 17-20, 23-24, 27.

    The addition of the following risks:

     

    ·        Transition of assets to BCPP be included as risk number 29, with a total risk of 40 (Red) and net risk of 10 (Green).

    ·        The HM Treasury and Scheme Advisory Board cost management process has an implied increase in employer contributions be included as risk number 30, with a total risk of 28 (Amber) and net risk of 7 (Green).

    ·        Impact of the Pension Services Manager leaving the council be included as risk of 31, with total inherent risk of 21 (Amber) and Residual risk of 7 (Green).

    ·        Failure to deliver accurate and effective pension administration be included as risk of 32, with total inherent risk of 36 (Red) and Residual risk of 18 (Amber).

    3.     Concluded that a detailed report from the Local Pension Board be presented at the next meeting of the Surrey Pension Fund Committee in June 2019.

8/19

TRAINING POLICY pdf icon PDF 73 KB

    Purpose of report: Surrey Pension Fund recognises the importance of providing appropriate training to both committee members and officers in relation to the operation of the Pension Fund. This report introduces the pension fund training policy as set out in Annex 1. 

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

     

    Key points raised during the discussion:

     

    1.     Members of the Committee welcomed the Training Policy and requested that details of seminars taking place should be circulated to the Committee and should also be fed into the training plan.

     

    Action/ further information to be provided:

     

    None.

     

    Resolved:

     

    That the Pension Fund Committee:

     

    1.     Approved the training policy and agreed that all members should prioritise attendance at training events wherever practicable.

    2.     That training is reviewed on an annual basis.

     

9/19

CASHFLOW ANALYSIS pdf icon PDF 81 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. Members of the Committee were informed that there would be a report from the actuary at the next meeting of the Surrey Pension Fund Committee and that following this this information may be reported annually rather than quarterly.

     

    1. It was noted that there was an error in the submitted report and that the report related to quarters two and three. 

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    The Pension Fund Committee noted the cash-flow position for quarters two and three which confirmed that no further action was required and no changes to the Investment Strategy would be required.

10/19

INVESTMENT STRATEGY STATEMENT pdf icon PDF 79 KB

    Purpose of report: The Pension Fund is required to publish its investment Strategy Statement (ISS) as a result of the investment regulations. It is the fiduciary duty and a statutory requirement of the Pension Fund Committee that it should regularly review its ISS and approve any changes where appropriate.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

    Steve Turner, Partner, Mercer

     

    Key points raised during the discussion:

     

    1.     Committee Members noted the changes to be made to the Investment Strategy Statement and queried whether the format of this could be reviewed to avoid this having to be approved as frequently as it was currently.

     

    2.     It was confirmed that the Strategy must be approved annually by the Committee however the format of this could be reviewed so that it would be a broad statement of the areas that the Surrey Pension Fund invests in. It was agreed that this would be reviewed going forward.

     

    Further action/ information to be provided:

     

    That the format and content of the Investment Strategy Statement be reviewed.

     

    Resolved:

     

    That the Pension Fund Committee approved the following changes to the ISS that have been made following the Pension Fund Committee meeting of 16 November 2018:

    1.     The changes to job titles and frequency of Local Board meetings.

    2.     The change in the Environmental, Social and Governance (ESG) policy to support and, where relevant, comply with the Border to Coast Pension Partnership (BCPP) Responsible Investment Policy. The BCPP Responsible Investment Policy was revised in November 2018 and is reproduced as Appendix C in the amended ISS.

    3.     The change in the Policy of the exercise of rights (including voting rights) attaching to investments to support the BCPP Corporate Governance and Voting Guidelines. The BCPP Corporate Governance and Voting Guidelines were revised in November 2018 and are reproduced as Appendix D in the amended ISS.

    4.     Addition of Glennmont Clean Energy Fund Europe III to the list of Private Equity Managers.

    5.     Inclusion of UK Base Rate as benchmark for Ruffer, and inclusion of Fund’s target return of +3% (gross of fees) over 3 year rolling periods against UK Base Rate.

     

     

11/19

INVESTMENT MANAGER ISSUES AND PERFORMANCE ASSET/LIABILITIES UPDATE pdf icon PDF 807 KB

    Purpose of 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.

     

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    Neil Mason, Head of Pensions

    Steve Turner, Partner, Mercer

    Sam Wreyford, Mercer

    Anthony Fletcher, Independent Advisor

     

    Key points raised during the discussion:

     

    1. The Committee were pleased to note that the equity protection policy was working exactly as expected. It was also noted that quarter four had been the worst in ten years however the markets had now rebounded. Members queried how well the investments had recovered since quarter four and the longer term impact of this and were informed that some headway had been made against any losses.

     

    1. The Committee queried what impact Brexit would have on the Fund’s investments and were informed that there were no concerns from an asset perspective.

     

    1. It was noted that the Fund’s Investment consultant Mercer, felt that the Surrey Pension Fund was in a good position and the Independent Advisor reflected that the markets may not be stable however it should not be as volatile as in quarter four.   

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    That the funding level as at 31 December 2018 was 93.3%. That the Fund’s investment performance for the quarter ending 31 December 2018 was -3.4%.

     

12/19

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

13/19

INVESTMENT MANAGER ISSUES AND PERFORMANCE ASSET/LIABILITIES UPDATE

Minutes:

Declarations of interest:

 

None.

 

Witnesses:

 

Neil Mason, Head of Pensions

Steve Turner, Partner, Mercer

Sam Wreyford, Mercer

Anthony Fletcher, Independent Advisor

Daniel Booth, Chief Investment Officer, Border to Coast Pension Partnership

 

Key points raised during the discussion:

 

1.     The Committee were provided with an update on the performance of diversified growth funds and a discussion around whether a move out of this area would be supported took place.

 

2.     The Independent Advisor provided an update on the performance of individual investment managers and Members were disappointed to note the performance of Aviva.

 

3.     It was noted that the recent transfer to Border to Coast Pension Partnership (BCPP) had gone well during a difficult time and Committee Members were informed that a range of alternative investment options were being created by Border to Coast that the Surrey Pension Fund would be able to invest in going forward.

 

4.     The equity protection strategy was discussed and it was confirmed that this would be formally reviewed at the Pension Fund Committee meeting in September 2019. 

 

Further action/ information to be provided:

 

None.

 

Resolved:

 

That the funding level as at 31 December 2018 was 93.3% and that the Fund’s investment performance for the quarter ending 31 December 2018 was -3.4%.

 

 

 

 

14/19

NATIONAL POOLING UPDATE

Minutes:

Declarations of interest:

 

None

 

Witnesses:

 

Neil Mason, Head of Pensions

Daniel Booth, Chief Investment Officer, Border to Coast Pension Partnership

Steve Turner, Partner, Mercer

Sam Wreyford, Mercer

Anthony Fletcher, Independent Advisor

 

Key points raised during the discussion:

 

  1. The Chief Investment Officer provided an overview of the Border to Coast Pension Partnership (BCPP) and the equity funds that will be available to the Surrey Pension Fund. 

 

  1. There was a discussion around the plan for transitioning further funds to BCPP and the Committee were informed that the next available transition would take place in July or September and that further information regarding this would be presented at the June 2019 meeting of the Surrey Pension Fund Committee.

 

  1. It was noted that at its meeting of 16 November 2018, the Committee had approved the delegation of authority to the Director of Finance, in consultation with the Chairman of the Pension Fund Committee, to transition the active global equity portion of the Surrey Pension Fund portfolio to the BCPP national pool when its design has been established to the satisfaction of officer and Fund Adviseros and assuming that the “necessary conditions” of governance have been satisfied and that the Committee had also approved (subject to meeting necessary conditions prior to launch) a 2019 commitment consistent with the Surrey Pension Fund target asset allocation to Private Equity within the BCPP Alternatives Investment proposition.  It was confirmed that any additional allocations would be undertaken in line with the Surrey Pension Fund’s local strategies.

 

  1. Members of the Committee queried whether the pooling had derived any savings to date and were informed that it was too early to tell but that there had been savings in basis points and performance fees no longer had to be paid. It was noted that the pooling arrangement had also allowed access to more experienced areas of equity.

 

Actions/ further information to be provided:

 

None.

 

Resolved:

 

The Pension Fund Committee noted the pooling update report.

15/19

PUBLICITY OF PART 2 ITEMS

16/19

DATE OF NEXT MEETING