Agenda item

This report is a summary of all manager issues that need to be brought to the attention of the Surrey Pension Fund Committee, as well as manager investment performance.

Declarations of interest:

None

Key points raised during the discussion:

1.    The Strategic Finance Manager (Pension Fund & Treasury) introduced the report, tabling the notes from the external fund manager meetings on 9 November 2015 (attached as Annex 2 to the minutes).

2.    The Senior Advisor (Pension Fund) gave a verbal summary of the meeting of the Local Pension Board on 12 October 2015. 

3.    In response to a question about whether there is a limit to the amount of stock lending that is allowed, the Strategic Finance Manager (Pension Fund & Treasury) confirmed that there was a limit.

4.    A member of the committee enquired whether the second paragraph on Internally Managed Cash (p19) would be accurate in the long term.  The Strategic Finance Manager (Pension Fund & Treasury) confirmed that the Fund would be cash positive for the next few years as it generates more cash than it pays out in benefits. 

5.    The Surrey Pension Fund Advisor suggested that the real yield trigger be treated as commercially sensitive in future.  It was agreed that officers would consider how to take this forward (Action Review A16/15). 

6.    The committee discussed the impact of the second Markets in Financial Instruments Directive which will reclassify all local authorities as retail clients.  The Chairman confirmed that the Shadow Advisor Board was against this reclassification.  Members felt it important to convey to the Financial Conduct Authority the huge administrative burden and additional cost for financial services firms and local authority pension funds.  The Chairman agreed that the cost should be addressed but did not feel that too much time should be spent calculating that cost at the present time. 

7.    Members queried why KPMG had been appointed to look at the separation of the Pension Fund from the Host Authority.  The Surrey Pension Fund Advisor explained that KPMG had been getting involved in governance related activity.  The Director of Finance also highlighted KPMG’s experience in auditing. 

8.    The Strategic Finance Manager (Pension Fund & Treasury) gave an update on national asset pooling and Surrey’s activities.  He confirmed that positive progress had been made with Cumbria and East Riding.  Talks were ongoing with six other local authorities and talks with three others were in the pipeline.  While the Funds were geographically distant to Surrey, they have good governance records and good relationships could be developed.  A full paper and draft proposal would be brought to the committee in February 2016.  Members agreed that regular private updates would be welcomed (Action Review A17/15).  The Chairman asked the committee for its opinions on taking on a small poorly governed Fund to help it improve and pointed out that this would not have a huge impact on overall returns.  This was generally approved of and it was felt that more than one small Fund could be supported in this way.  There was concern that pooling could lead to big philosophical shifts for some Funds as different Funds take different investment approaches eg some manage investments predominantly inhouse while others outsource all investment management.  There was also concern that democratic accountability will be diluted with pooling.  It was felt that a more informed discussion was required.  The Director of Finance confirmed that an engagement plan will be developed to keep Fund members informed.

9.    The committee noted the £79m increase in liabilities and discussed the options for valuing liabilities in different ways.  The Senior Advisor (Pension Fund) highlighted that there are a number of different actuarial methodologies favoured by different actuarial firms.  The Surrey Pension Fund Advisor and Mercer representative supported a change to using CPI+3%.  It was agreed that the committee should receive a report in February 2016 outlining the CPI model, economic model and gilts model and detailing the risks and opportunities involved (Action Review A18/15). 

10.  The Vice-Chairman highlighted the performance of Franklin Templeton and UBS and asked for some further context.  The Surrey Pension Fund Advisor summarised the main points from the notes of his meetings with external fund manages (attached at Annex 2).  In response to a question about whether the benchmark for Franklin Templeton should be changed, the Surrey Pension Fund Advisor agreed that it could be benchmarked in a different way given its approach and expected returns but that it is a pooled fund and so the benchmark for the pooled fund has been adopted.  The Chairman queried whether Western Asset Management’s performance should be of concern given the upcoming transfer of assets into a multi asset credit portfolio to be managed by Western.  The Surrey Pension Fund Advisor stated that the Fund should not delay the transfer but keep performance under review.

Actions/further information to be provided:

      i.        Officers to consider how to present the real yield trigger at future meetings of the committee.

     ii.        Officers to provide regular private updates to the committee on national asset pooling.

    iii.        Director of Finance and Strategic Finance Manager (Pension Fund & Treasury) to bring a report in February 2016 outlining the CPI model, economic model and gilts model and detailing the risk s and opportunities involved.

Resolved:

That the report was NOTED.