No apologies were received.

Members 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 November 2010

The minutes of the meeting held on the 24 November 2010 were agreed as a correct record of proceedings and the Chairman authorised to sign them.

To receive information on performance, investment activity and the latest portfolio valuation.

The Committee received a report of the Director of Finance and Corporate Services the purpose of which was to report the performance, investment activity and the latest portfolio valuation.

Officers explained to the Committee that initially there had been a problem with the 31 December 2010 performance figures provided by the WM Company in relation to Henderson (so they were not included with the agenda) but that this issue had now been resolved, allowing the final information to be tabled at the meeting.

The Committee heard that both Henderson and L&G were currently performing close to the index.

It was RESOLVED that the information provided be noted.

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

 The Committee received a report of the Director of Finance and Corporate Services the purpose of which was to receive the Fund Managers’ quarterly reports, approve the proposed investment policies and to agree the fund’s overall approach to asset allocation.

The position of the fund was similar to that reported at the last meeting as regards the weightings relative to the benchmark.  Property remained underweight, but well within the 2% variance of the central weighting agreed by the Committee as being the point where action would be required (or discussed).

There would be no presentation from fund managers at this meeting owing to the requirement to consider the fund’s strategic asset allocation.

The fund’s investment consultant from Hymans Robertson provided a background to and overview of market performance.  In particular he referred to the following:

• Markets had remained volatile but had managed a general upward trajectory over the last 12 months.
• Sterling had strengthened slightly in January.
• That there had been some sell off of investments in Emerging Markets in January, probably due to political influences on markets in those regions.
• Bond markets had continued to perform well but had also seen a slight sell off in the 4^th quarter.
• Currency markets had remained volatile with sterling showing some strength in the early part of 2011.

In addition, it was reported that Henderson had recently agreed the purchase of the fund management firm Gartmore.  It was unlikely that the fund’s investment arrangements with Henderson would be impacted, but it would be important to monitor closely any changes being made.

It was RESOLVED that the report be noted and the investment policies and approach to asset allocation be endorsed.

To consider matters relating to the fund’s future strategic asset allocation (as referred from the previous meeting)

The Committee received a report of the Director of Finance and Corporate Services, accompanied by a paper prepared by the fund’s investment advisors, Hymans Robertson, the purpose of which was to provide further information pertaining to possible asset classes in which the fund could invest in order to diversify away from its predominant exposure to equities.  This information was requested by the Committee at its meeting in November 2010 following the consideration of a preliminary report on diversification.  A second paper for the meeting had been produced by the advisors (also at the request of the Committee) covering the fund’s regional equity allocation, and in particular its investment approach to Global Emerging Markets (GEM).

Three asset classes were chosen for further consideration by the Committee.  These were:

• Diversified Growth Funds
• Infrastructure
• Private Equity

Each Asset Class was separately considered in the paper and at the meeting in an informal presentation given by the advisor.

• Diversified Growth Funds
  
  

Diversified Growth Funds (DFGs) generally combine a basket of uncorrelated assets designed optimise potential return whilst reducing risk.  Funds typically hold significant allocations to equities (often tactically) and a range of allocations to alternative assets such as infrastructure, commodities, currency and absolute return.

DFGs are based on active management and therefore the skills of the manager.  This means that fees are significantly higher than those applying to the fund’s existing, largely passive, equity and bond investments (a typical DFG fee may be around 90 basis points per annum).

It was recommended that should the Committee decide to pursue this option they should consider an initial investment of 10% with a view to increasing that investment to 20% after perhaps one year.

• Private Equity

Private Equity investing involves providing finance for business development.  In return for providing this finance investors acquire a share of the business.  The majority of UK pension fund exposure in this area relates to buyouts i.e. typically, buying a company or a division of a company which is underperforming.  The private equity firm will supply capital and management expertise with the aim of restructuring the business within a 3-5 year period for resale.

Returns from private equity should be expected to be higher than those in quoted equity markets owing to the increased risk; generally returns should be 3-5% higher.

Hymans Robertson advised the Committee that although this may be an option should the Committee wished to enhance returns, if the driver for change was diversification this option did not fully meet the Committee’s criteria.

In addition, the governance obligation to the fund would increase significantly and the investment would be very long term, probably 10-12 years.

• Infrastructure

This option was similar to Private Equity in terms of returns and “investment horizon”, but would satisfy the diversification aims of the Committee.  Returns on infrastructure often correlate to inflation and tend to show a relative lack of sensitivity to other changes in financial conditions, making the asset class an attractive option for Pension Funds.

Investment in infrastructure would create  ...  view the full minutes text for item 75.

To receive and note the requirement of LGPS Investment Regulations 2009 to operate a separate pension fund bank account from 1 April 2010 and, as a result of this change, to agree a separate treasury policy

The Committee received a report of the Director of Finance and Corporate Services the purpose of which was to report the requirement of the LGPS Investment Regulations 2009 to operate a separate bank account from 1 April 2010 and as a result, to seek agreement to a separate Treasury Management Policy for the fund (attached as an appendix to the report). 

It was reported that the proposed regime would in all respects mirror the Council’s own approach to treasury management.  Other thing being equal, returns achieved by the fund may suffer slightly relative to the previous pooled basis (due mainly to the requirement for more liquidity), but that this effect should in practice be fairly minimal.  (Regardless of any possible negative effects, this was not an issue for the Committee, due to the mandatory nature of the change – officers having previously recommended the maintenance of the pooled basis for as long as possible.)

It was RESOLVED

1.                      That the move to a separate Pension Fund bank account be noted.

2.                      That the proposed Pension Fund Treasury Policy be adopted.

To inform the Committee of the proposed arrangements for the review of the statutory content of the 2010/11 Pension Fund Annual Report

 The Committee received a report of the Director of Finance and Corporate Services containing information on the proposed arrangements for the review of the statutory content of the 2010/11 Pension Fund Annual Report.

The Committee heard that owing to the requirement to revise at least two of the statutory content items (the Funding Strategy Statement and Statement of Investment Principles) in respect of the 2010 Actuarial Valuation (yet to be finalised), the usual timetable could not be met and the review would therefore be deferred until the June meeting.

It was RESOLVED that the deferral and reasons for it, be noted.

To report progress on the 2010 Triennial Valuation.

Reports of the Director of Finance and Corporate Services are attached.

The Committee received a report of the Director of Finance and Corporate Services reporting progress on the 2010 triennial Actuarial Valuation. 

The Committee heard that:

• The results of the triennial valuation would be used to calculate a revised contribution rate for the fund.
• The fund had performed relatively well (in investment terms) since the 2007 valuation (in the 16^th percentile of the 3-year period) and that this had significantly mitigated the disappointing market returns in the period (relative to the position of some funds).
• Life expectancy assumptions continued to extend, increasing the fund’s calculated liabilities.
• The change from RPI to CPI had been of benefit to the fund by reducing the assumption for pensions increase (and also for uplift of deferred pension salary bases).
• Interim results suggested a common contribution rate going forward of 24.4% (compared to an existing 23.9%).
  
  

The Committee requested information regarding the contribution rates of other similarly sized authorities and were informed that these would be likely to be in the region of 25%, but that more precise figures (derived from actual 2010 valuation results) would be distributed when available.

It was RESOLVED that the report be noted.