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 Finance Manager – Pensions and Treasury introduced the report.  In response to a question about the cost of the transfer from equities run by LGIM to the Standard Life GFS Fund, the officer explained that the transfer had occurred at mid-price and so there had been no direct transaction charge.

2.    The Strategic Finance Manager – Pensions and Treasury explained that Pitchbook was a private company that gathers information via Freedom of Information requests and sells on the data.

3.    The Strategic Finance Manager – Pensions and Treasury informed the Board that a report on the ill health insurance policy would be brought to the November meeting (Action Review ref: A22/14).

4.    The Board discussed the potential private equity opportunities with Capital Dynamics and Goldman Sachs.  Historically, the Fund had looked at opportunities in Private Equity from the stable of managers it previously invested in.  Members queried how the figures being recommended for commitment in the private equity opportunities had been identified.  The Strategic Finance Manager – Pensions and Treasury explained that the figures follow the pattern of the last 10-12 years of being reasonable and affordable and within the cash flow of the pension fund.  After discussion, it was agreed that a wider review of the Fund’s Private Equity holdings and future strategy for this part of the portfolio should be considered before committing additional monies to this asset class.  Within this, Mercer would identify the top tier private equity managers and address whether the Pension Fund receives appropriate returns for the fees charged, what kinds of funds complement what the Pension Fund already invests in, and the value from existing managers compared to their peer group (Action Review ref: A23/14).

5.    Members queried whether Board Members were expected to attend investment manager meetings and, if so, could they be arranged so that they did not clash with other Council meetings.  The Chairman and Advisors assured the Members that these were regular monitoring meetings which Board Members had an open invitation to attend but it is not essential that they do.  The Surrey Pension Fund Advisor informed the Board that some Boards never meet investment managers and some Boards spend over half of their time meeting investment managers.  The balance sought by the Surrey Pension Fund Board was closer to the optimum.

6.    A Member asked whether online training was available.  The Chairman informed her that CIPFA provides online training and she would send her some information. 

The Board meeting adjourned at 12.30pm for lunch and reconvened at 1pm.

The Chairman left the meeting at 1.05pm and the Vice-Chairman took the Chair.

7.    The Strategic Manager – Pensions and Treasury presented the Financial and Performance Report. 

The Chairman returned to the meeting at 1.10pm and took the Chair.

8.    The Surrey Pension Fund Advisor presented the summary of meetings with Fund Managers on 17 September which had been circulated with the late supplementary agenda.  The Mercer representative informed the Board that the decision to invest more capital with CBRE had, so far, proven to be a good decision.  It had helped reduce exposure to the European property markets and increased investments in the UK property market which had performed well.  The Chairman expressed discomfort with having 100% of the Fund’s property portfolio invested in the UK and recommended support for changing the wording in the Surrey mandate to CBRE.  The Board agreed with this proposal.

9.    The Surrey Pension Fund Advisor informed the Board that while Newton had outperformed the benchmark when reviewing the past three years’ performance (albeit below target) this was primarily due to good performance in just one year.  It was noted that the house remains very cautious in its outlook.  While this would be expected to help a manager outperform in a falling market there were some concerns that this could lead to missed opportunities.  After discussion, it was considered appropriate to review the role of Newton and compare them against alternative managers.  The diversification merits relative to Marathon would also need to be considered, when identifying alternative managers.   It was suggested that Mercer identify a range of alternative global equity managers and invite Newton to pitch against them.  The Mercer representative agreed but explained that it would first be necessary to check how to do this so that the process is consistent with OJEU regulations (Action Review ref: A24/14).

10.  A Member suggested that the Pension Fund has a big spread of fund managers and asked if it would be appropriate to shorten the list.  The Surrey Pension Advisor informed the Board that the number of managers was almost exactly in line with the average for the LGPS. 

11.  The Surrey Pension Advisor informed the Board that he had concerns regarding Mirabaud and the performance achieved for the Fund.  He expressed concern that Mirabaud does not take enough notice of what is going on in the markets in its portfolio management decisions.  The Board concurred with the concerns and agreed to terminate Mirabaud’s contract with immediate effect and temporarily move the 4% allocation from Mirabaud to a passive portfolio with Legal & General.

Actions/Further Information to be Provided:

a.    A report on the ill health insurance policy to be brought to the November meeting of the Board.

b.    Mercer to undertake a review of the Fund’s Private Equity holdings and report back to the Board.

c.    Mercer to provide a report identifying a range of potential alternative global equity managers to the November meeting.

Resolved:

      i.        That the Pension Fund Board approves the report and the decisions as laid out;

     ii.        That the Pension Fund Board defers a decision on making a £7m commitment each year for 2014/15, 2015/16 and 2016/17 to the Capital Dynamics LGPS Collective Private Equity Vehicle;

    iii.        That the Pension Fund Board defers a decision on making a USD 20m commitment to the Goldman Sachs Private Equity Manager (PEM) Fund;

   iv.        That the Pension Fund Board amends the wording in the Surrey mandate to CBRE to allow investment in global property;

    v.        That the Pension Fund Board instructs officers to terminate Surrey’s mandate with Mirabaud and instruct LGIM to manage the 4% allocation in passive equities on a temporary basis, subject to further review.

Next Steps:

None