No apologies were received.

Members of the Committee are asked to declare any interests in matters appearing on the agenda.

No declarations of interest were received

To approve the minutes of the meeting held on 24 June 2010

The minutes of the meeting held on 24 June 2010 were approved as a correct record of proceedings.

To report performance, investment activity and the latest portfolio valuation.

It was AGREED that items 4 and 5 be heard together.

The Committee received a series of presentations on matters relating to the fund and its investments.

The first presentation was from Hymans Robertson and included the following:

• a market update including bond market and currency market information – both had performed relatively well since the end of the previous quarter (30 June 2010);
  
  
• the LBRuT fund was biased towards equities and these markets had also performed well.
  
  

Tamsin Frost of Schroders addressed the Committee on the subject of the fund’s investment in the Schroder Exempt property Unit Trust (SEPUT).  The presentation referred in particular to the following:

• an update on the UK property market, including relative pricing versus other assets;
  
  
• that the performance over 3 years in both absolute and relative terms had been disappointing, but that over one year the position was more encouraging, and it was hoped that this would continue (in order to address some of the earlier underperformance);
  
  
• that a repositioning of the fund was continuing and that gearing now stood at 11.5%.
  
  

In conclusion, it was reported that although there had been difficult circumstances to address, the actions taken had mitigated some potential negative effects of these.

In response to comments made and questions raised, it was reported:

• that Schroders were generally happy with the current property portfolio, whilst continuing to seek improvements;
  
  
• that a major site in Croydon was currently undeveloped but that various possibilities for its future use were being considered (although there were no plans at the moment for its development);
  
  
• that there were three SEPUT managers, Ian Mason, Nick Barker and Clara Westlake, with 45 years of investment experience between them.

Mark Fulwood and Robert Villiers of Henderson Global Investors addressed the Committee and referred, in particular, to the following:

·         that Henderson (as a business) was performing strongly, having improved its position in the last year;

·         that in the quarter ending 30 June, the portfolio managed for the Council had performed negatively on an absolute basis, but relative performance was positive to the benchmark to the extent of 0.3% in aggregate (attributable to the equity rather than bond components of the portfolio);

·         the strategies that Henderson applied to add value in the “enhanced index” (equity) funds.  Value-added was targeted at 75 bps above index, with a “tracking error” (expected variance) of 50 bps;

·         the four strategies were:

o        Fundamental
- Overweight attractive stocks, underweight unattractive stocks (relative to index weights)

o        Liquidity
- Buying stocks at a discount

o        Relative Value
- Exploit differences between related securities

o        Event Driven
- Opportunities arising from M&A etc.

·         all of the strategies had performed well in the year-to-date, with the exception of Fundamental which performed neutrally;

·         that the portfolio at year-to-date, 1-year and 3-years was outperforming the benchmark (although over 3 years, absolute performance was still marginally negative).

In response to comments made and questions raised, the Committee heard:

• that the team responsible for LBRuT’s investments at Henderson included an Investment  ...  view the full minutes text for item 57.

To note the fund managers’ quarterly reports, approve the proposed investment policies and agree the fund’s overall approach to asset allocation.  

(Presentations to be given by Tamsin Frost, Schroder investment Management Ltd and Mark Fulwood and Robert Villiers, Henderson Global Investors.)

See Minute 57.

The Committee received a report of the Director of Finance and Corporate Services the purpose of which was to consider the ISA 260 report prepared by the auditor in relation to the 2009/10 Pension Fund accounts, prior to the issue of the auditors’ opinion.

Leigh Lloyd-Thomas, partner at the Council’s external auditors, PKF, introduced the report and commended Council officers for producing an excellent set of accounts.  He referred to the main issues raised within the ISA 260 report, which were:

• the inability of the external auditor to verify the value of the Council’s assets in a conventional way owing to the nature of the investment with L&G (where funds are held within two insurance policies).  However, PKF reported that they were satisfied with L&G’s valuation;
  
  
• that four internal audit control matters had been included in the report but that these had all been addressed adequately;
  
  
• some late payments had been made by smaller employers, and action was being taken against one employer;
  
  
• there was one ongoing dispute over pension payments for an early retiree and legal advice was being sought on enforcement action;
  
  
• a penalty had been charged in relation to overdue payments by LBRuT to HRMC due to an issue over the method of payment used, which was now resolved;
  
  
• the cash position of the fund had been overweight at year-end; however, this was necessary in light of the decision by the Committee to address the property position (which was underweight against the benchmark) by making opportunistic purchases.

In response to comments made and questions raised, the Committee heard that:

• the arrangement with L&G was typical of the way passive mandates were managed and was not of concern, but it did mean that assets could not be valued by PKF in “conventional” way i.e. using external pricing data.  They were happy with the valuation provided by the auditors of the L&G Fund;
  
  
• that the assets within the pooled funds were “ring-fenced” to co-investors and the fund therefore carried no risk in the (unlikely) event of the manager defaulting in any way.
  
  

It was RESOLVED:

1.                  That the final report of the Auditor to those charged with governance be noted.

2.                  That the need for the Auditor to review the Pension Fund Annual Report be noted and authority delegated to the Director of Finance & Corporate Services to make any consequential amendments required.

The Committee received a report of the Director of Finance and Corporate Services the purpose of which was to provide information on the audit fees for the Pension Fund and agree the fees for the 2010/11 audit.

Chris Smith, Project Accountant, and Mark Maidment, Director of Finance and Corporate Services introduced the report and in particular advised the Committee of the following:

• current policy was that external auditors be changed every five years with appointments being made by the Audit Commission.  PKF had now been with LBRuT for that long and hence would be replaced for 2010/11 onward, by the Audit Commission itself;
  
  
• LBRuT had made representations to the Commission about the level of fees and the fairness of the way in which they are determined.  An unsatisfactory reply had been received but it was agreed that in the light of this it would not be beneficial to make any further representations at this point;
  
  
• that the Audit Commission was to be abolished by central government;
  
  
• that after the abolition of the Commission it was likely that local authorities would appoint their own external auditors, but that the Audit Commission would conduct the Council’s 2010/11 audit under current arrangements.
  
  

The Committee expressed concern with the level of fees but agreed that the representations made to date were sufficient.

The Committee expressed concern regarding the uncertainty surrounding the abolition of the Audit Commission.

It was RESOLVED:

1.                  That the issues reported be noted.

2.                  That the level of audit fees for 2010/11 be agreed.

The Committee received a report of the Director of Finance and Corporate Services the purpose of which was to advise members of training opportunities available to them and to introduce the recently published “Training Needs Analysis for Elected Representatives and Non-Executives in the Public Sector” (TNA), the result of a joint enterprise between CIPFA and Hymans Robertson.

Copies of the TNA were distributed to members of the Committee and its purpose explained.  Members were asked to review the TNA in order to identify which of the high level subject areas it would be most useful for them to receive training in.  This would then be taken into account in planning any bespoke training to be provided in the future.

It was RESOLVED:

1.                      That training opportunities be noted.

2.                      That TNA documents be completed and returned to officers for assessment.