Agenda item

This report deals with the investment transactions of the pension fund during the September quarter and the position of the fund as at 30 September 2012, together with other matters considered by the Investment Advisors Group (IAG) at its quarterly meeting of 16 November 2012.

Declarations of interest:

None.

Officers:

Phil Triggs, Strategic Manager (Pensions & Treasury)

Jon Evans, Senior Accountant (Pensions & Treasury)

Key points raised during the discussion:

1.    The Strategic Manager introduced the item and advised that the report presented the Pension Fund portfolio position.  The value of the fund was £2.20 billion at the end of the September quarter, however, had subsequently risen to £2.67 billion at the time of print (9 November). It was noted that November had been a good month for the Pension Fund, with rising markets reflecting a growing confidence in the stock market. 

2.    The Strategic Manager talked the Committee through the report, highlighting paragraph 7 where terminated mandates were detailed.  Paragraph 10 highlighted one of the areas that the Investment Advisor’s Group (IAG) had discussed at their last meeting, regarding the UK gilts portfolio.  Following the discussion at the IAG it was agreed to allocate 50% of the UK gilt portfolio to return to an absolute return strategy.  On 17 December the IAG would be meeting with, and interviewing, prospective Fund managers.

3.    Attention was drawn to paragraph 14, where individual performances were recorded.  It had been a good quarter for the Fund, with only one fund manager underperforming against benchmark.  Over the year the portfolio had performed at 15.1%, above the benchmark return of 14.4%.  Members were pleased to see so many managers performing above the benchmark, however asked for more information about the reason that one manager, Mirabaud, had underperformed, particularly as they had traditionally been a higher performer.  The Strategic Manager explained that there had been a recovery by the banking sector in terms of share prices during the quarter.  Mirabaud had been underweight with regards to banks, but officers were not overly concerned as they were a long term investor with a good long term performance record. 

4.    The Cabinet Member for Change & Efficiency expanded on paragraph 10 of the report and advised that IAG had considered that there was too much risk associated with the exposure to UK Gilts.   Consideration was given to investing away from the UK via a global absolute return product.  She confirmed that sophisticated absolute return bond managers would be interviewed on 17 December. 

5.    Members asked for more information about why short term periods of underperformance were expected.  The Chairman advised that there were different styles of manager, and the market did change.  The Strategic Manager expanded by explaining that there was diversity in the style of managers used in the fund portfolio.  It was good practice to have a range of manager styles.  The Cabinet Member for Change & Efficiency felt it was important not to rely entirely on one type of manager due to the large equity exposure and levels of volatility.  However, moving toward an absolute return strategy could reduce volatility by around 6%.  It was important to recognise that markets recover and that in some quarters performance would be lower for some managers. 

6.    Tony Elias, who sat on both Audit & Governance Committee and the IAG, commented that not changing approach involved more risk than constantly reviewing as the market was changing all the time. 

7.    Before concluding, the Strategic Manager explained that more had been put in to diversified growth since the end of the September Quarter, with £200 million being the current figure.

Actions/further information to be provided:

None.

RESOLVED:

The Committee noted the report.

Committee next steps:

None.