Agenda item

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

Declarations of Interest:

None.

Key Points Raised During the Discussion:

1.    The Strategic Manager – Pension Fund & Treasury introduced the report.  He highlighted the recommendation by the Fund’s independent advisor that attention be given to the question of rebalancing.  The Chairman suggested that the committee return to this issue at the end of the meeting.

2.    The committee had previously asked at what rate did Surrey County Council charge for loans (Action Review ref: A5/14).  This information was included in the committee report.  Such rates were assessed by speaking with money market brokers on the morning such transactions were planned to take place.

3.    The Chairman suggested that the list of strategies, policies and reporting frameworks approved by the Board underlined how much work had been undertaken in the past year.  The Board now had a comprehensive set of strategies and policies.  She thanked officers for their hard work.

4.    The Strategic Manager – Pension Fund & Treasury highlighted the improved performance of the markets over the past few weeks and stated that the estimated market value of the Fund as of 15 May 2014 was £2,806m.

Tony Elias joined the meeting.

5.    With regard to the performance of Fund Managers, the Strategic Manager – Pension Fund & Treasury highlighted the under-performance of Franklin Templeton in Quarter 4 and the significant out-performance of Majedie.

Tim Evans joined the meeting.

6.    Members expressed some concern about Newton’s performance.  The Surrey Pension Fund Advisor confirmed that Newton was still pursuing a thematic based investment philosophy.  Changes to the global equity team had been made in 2012, which had resulted in a reduction in the number of stocks held in the portfolio from around 120 to 80 holdings in order for the manager to demonstrate greater conviction in its investment ideas.  It was noted that Newton had maintained a relatively cautious approach to investing which had been reflected in their portfolio.  Given the strong rise in markets over the last couple of years it was questioned whether Newton had been too slow to change its view, which may have impacted relative performance.  He advised keeping an eye on Newton.  The Chairman asked the Surrey Pension Fund Advisor to keep a watching brief on Newton and suggested that the Board review whether to invite Newton to a future meeting after a further quarter’s performance results are published (Action Review ref: A9/14).

7.    Officers confirmed that CBRE had been high on the agenda over the past 18 months.  The performance target for the mandate had been discussed with them and subsequently revised.  The allocation to CBRE has also been increased through additional funding which was specifically aimed to help the manager reduce the portfolio’s exposure to the closed-ended European property holdings.  The Mercer representative explained that while the UK element of the property portfolio was doing well, the European property funds continued to detract from relative performance.  However, this wasn’t as much of a problem now as it was. 

8.    The Surrey Pension Fund Advisor introduced and expanded on the notes of his meetings with Fund Managers. 

9.    A member of the Board queried whether the situation in Ukraine could have any impact on the Pension Fund through gas supply disputes.  The Mercer representative confirmed that the Surrey Pension Fund does have a small exposure through Franklin Templeton.  The Surrey Pension Fund Advisor added that impacts from the Ukrainian crisis had not been seen widely in financial markets.  There was continued concern from some Members of potential future effects.

10.  In response to a query about why the Fund would be investing in a bond mandate which had a low duration position of 1.4 years, the Surrey Pension Fund Advisor explained that the logic of Franklin Templeton’s approach was to develop a portfolio with broad, diversified sources of return from global income and currency markets.  The Chairman highlighted that Franklin Templeton had an unconstrained, somewhat contrarian investment approach, which could potentially lead to underperformance in the short-term, but that the manager had a strong track record over the long-term.

Actions/Further Information to be Provided:

Board to review whether to invite Newton to a future meeting after a further quarter’s performance results are published.

Resolved:

1.    To approve the report and the decisions as laid out.

2.    To postpone the decisions on rebalancing whether to make a USD 20m commitment to the Standard Life Secondary Opportunities Fund 11 (SOF 11) to the end of the meeting.

Next steps:

None.