Agenda and minutes

Apologies for absence were received from Councillors Russell and Tiwari.

There were no declarations.

There were no deputations.

a)    Pension Board appointments

It was noted that the appointment of Paul Dunphy, an employee representative on the Pension Board, had been extended until October 2019 and following consultation with the employers, Steve Worrall from Veolia had been appointed as the employer representative. Steve Worrall was a Pensions technical manager, with strong specialist technical knowledge and should be a welcome addition to the Board.

b)   Fixed Income item

The Committee was reminded that it had been reported at the previous meeting that an item on “Fixed Income” would be submitted to this meeting. It was noted that officers and advisers had been drafting a report on the Fixed Income mandate, reviewing Insight’s performance and considering options with regard to moving forward. Work had been completed on this, but it had been too late to meet the agenda deadlines. In order to fully consider this item, the report would now be considered at the next meeting on 27^th February 2019.

            ACTION BY: Executive Director Corporate Services

There was no urgent business.

To approve and sign as a correct record the minutes of the meeting of the Pension Committee held on 13^th September 2018.

With regard to the last paragraph of item 7 “Performance report” on page 11, it was noted that there was a typographical error and the report regarding the poor performance of Standard Life was not scheduled to be submitted to this meeting but would be considered at the June Committee meeting.

RESOLVED –

THAT the minutes of the meeting held on 13^th September 2018 be approved and signed as a correct record, subject to the above amendment.

To note the minutes of the Pension Board meeting held on 15^th October 2018.

These include a Part II minute which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication. The Part II minute has, therefore, been circulated to Committee Members only.

If the Committee wishes to discuss the contents of the Part II minute it may pass the proposed resolution identified at the end of the agenda to exclude members of the public and the press from the proceedings for that discussion.

It was noted that these minutes included a confidential part II minute containing confidential information relating to this item, which Committee Members had read and would take into account when making the decision.

RESOLVED –

THAT the Pension Board minutes of its meeting held on 15^th October 2018 be noted.

Report of the Executive Director Corporate Services

This report updates on the Fund’s Carbon Footprint of its equity assets and also presents information on other asset classes.

Consideration was given to the report of the Executive Director Corporate Services.

The Head of Treasury and Financial Services explained that the Committee considered a report on its inaugural carbon footprint in November 2017. This report built on that work and demonstrated how the Fund’s footprint had changed.

It was noted that carbon footprints were most common in the equity asset allocation. The report included information on carbon footprints from the three Fund’s equity managers namely Baillie Gifford, Harris and Legal and General. Representatives from all three managers were in attendance to discuss their footprints and engagement throughout the year. Appendices A-C on pages 37 to 67 of the agenda included detailed footprints from each investment manager.

James Sparshott, Meryam Omi and Iancu Daramus, from Legal and General (L&G) circulated additional information entitled “Carbon Footprint Analysis”, as attached at Appendix 1. They summarised the main points and replied to questions as follows:

-       Asia Pacific (excluding Japan) and emerging market portfolios had the highest intensity, reflecting a lower level of carbon efficiency in this region. They had 2x the carbon intensity of companies in the FTSE UK portfolio.

-       The information they had provided was quite reliable. It was mandatory for companies located in the UK, USA and Europe to disclose this information.

-       L&G would work with their clients to gauge how they wished them to vote and their preference for investments.

-       Carbon footprints of many companies were improving and next year they would provide a report showing comparisons.

TO NOTE: Executive Director Corporate Services

Will Fox-Robinson (Natixis Investment Managers) and Lauren Digani for Harris circulated a set of slides as attached at Appendix 2. They summarised the main points and replied to questions as follows:

-       Harris had a fully integrated approach to environmental, social and governance (ESG) at every step of its investment process.

-       One holding, LafargeHolcim, represented nearly 80% of Camden’s carbon exposure. Harris had had 13 points of engagement with the company management and industry experts regarding this company’s position. LafargeHolcim’s key carbon initiatives were to improve thermal efficiency, reduce clinker content and increase the use of alternative fuels. It had made notable progress and aimed to further reduce carbon emissions by 2030. In addition, the company had taken a holistic approach to address sustainability and offered attractive exposure to emerging markets while upholding developed market standards regarding emissions, safety and governance.

-       Harris would provide a breakdown of holdings in their report to Committee next year.

TO NOTE: Executive Director Corporate Services

Tom Wright and Laura Thomson, Baillie Gifford, circulated a document containing a set of slides entitled “London LGPS CIV Global Alpha Growth Fund” as attached at Appendix 3.  They summarised the main points and replied to questions as follows:

-       The largest carbon contributor in the portfolio was CRH, a cement company. However, following discussions with the manager, a carbon reduction programme had been put in place

-       Engagements with clients took place twice a  ...  view the full minutes text for item 8.

Report of the Executive Director Corporate Services

This report presents findings of our Performance Measurer, PIRC, after analysing performance in the LGPS (Local Government Pension Scheme) over recent years.

Consideration was given to a report of the Executive Director Corporate Services.

The Committee noted that the Performance Measurer, PIRC, compiled performance statistics for 61 LGPS funds with a total value of £177bn. Their cohort was two thirds of the LGPS universe and compared to total assets of £271bn for English and Welsh Funds. PIRC compiled an annual report, as attached at Appendix A to the report, setting out key themes and headlines from their performance measurement of their cohort of funds. Karen Thrumble, PIRC, was in attendance at the meeting and highlighted some of the key headlines from the 2017/18 report.

It was noted with regard to Camden’s performance that over both periods of 5 years and 10 years, the Fund had experienced higher than average volatility than other funds, but had been unable to convert that volatility into additional return. The Fund ranked 76^th percentile over 10 years and 95^th over the last 5 years.  The Head of Treasury and Financial Services explained that the main reason for this ranking was the poor performance of Aberdeen, an equity manager which had held 25% of the fund. They were appointed in 2008/09 and removed in 2016. In the earlier part of that period, Fidelity, another fund manager had also underperformed. However, over the last 3 years the Fund had met target expectations.

The Committee was assured that the performance of Fund managers were monitored carefully. The Chair of the Committee, officers and the independent advisor held meetings with Fund Managers where questions were asked and discussions were held about their performance.

Reference was made to paragraph 1.4 of the report and in particular that equities continued to drive the performance of the Fund and the balance between active and passive equity performance. In response to a question, Karen Thrumble said that she could provide a league table to show the types of equities London Boroughs held.

ACTION BY: Executive Director Corporate Services

The Chair thanked Karen Thrumble for attending the meeting.

RESOLVED –

THAT the contents of the report be noted.

Report of the Executive Director Corporate Services

This report presents the performance of the Pension Fund investment portfolio and that of the individual investment managers for the quarter ended 30 September 2018.

Consideration was given to the report of the Executive Director Corporate Services.

The Committee noted the performance of the Camden Pension Fund investment portfolio and the individual investment managers for the quarter ended 30^th September 2018.

The Committee noted in particular that

-       The Fund portfolio had a market value of £1.701bn at 30^th September 2018 compared with £1.654bn at 30^th June 2018. Global equities made gains in the last quarter primarily on the back of continuing strength in the US. Global bond yields were broadly higher as central banks indicated an upward rate trajectory.

-       UK equities fell over the quarter but most overseas equity markets continued to perform positively. The Camden Fund saw its overseas returns boosted by the fall in Sterling that resulted from the UK base rate increase.

-       Median LGPS fund growth was 7.8% in the year to September 2018 and 2.2% for the Quarter. The Camden Fund returned a slightly lower return of 6.9% in the year and 2% for the Quarter respectively. However, over a three year period, the Camden Fund’s growth of 12.6% compared favourably to the average for LGPS funds of 12.5%. The benchmark data was provided by PIRC, the Fund’s performance measurement service, and currently comprised a universe of 62 funds with a combined value of £180bn. A report detailing the appropriateness of Benchmarks and Targets set to measure the performance of the Fund’s Investment Managers which had been considered by the Committee in September 2015 was recirculated to Committee Members prior to this meeting for information.

Committee Members noted Appendix A “Camden Client Ranking by Manager” which detailed Camden’s exposure as clients to the overall fund or strategy managed by each Investment Manager. In future, where Camden represented greater than 5% of the Investment manager’s fund and there was a material increase due to client outflows, this would be reported to Committee on an exceptions basis.

The Committee also noted Appendix B, which presented a more comprehensive overview of the financial markets by the Independent Investment Advisor and reported the performance of the individual Investment Managers in more detail. Karen Shackleton, Independent Investment Advisor highlighted the salient points as follows:

a)        London CIV - Baillie Gifford – Baillie Gifford was an active investor that invested in companies where it had conviction that they had sustainable competitive advantages and would grow earnings faster than the market average. The sub-fund delivered a return of +3.06% in Q2, outperforming Harris by +0.8%, and by +13.3% for the 12 months to Q3 2018. Although they underperformed the Index by -2.56% for the quarter, on a 12 months basis the sub-fund had still out-performed the index by +1.5% and had consistently delivered strong performance since inception.  In terms of assets under management, the sub-fund stood at £2,371.3m as at the end September, an increase of £188m since the previous quarter end. Camden’s investment represented 11.99% of the Fund.

b)        Harris - was also an active equity manager. Harris’ approach was  ...  view the full minutes text for item 10.

Report of the Executive Director Corporate Services

This report sets out revisions to the Funding Strategy Statement (FSS) which establishes how scheme employers in the Pension Fund are treated. It sets out how employer liabilities are measured, the pace at which these liabilities are funded and how employers or pools within the Fund pay for their liabilities.

Consideration was given to a report of the Executive Director Corporate Services.

Douglas Green and Barry Dodds of Hymans Robertson were in attendance at the meeting and highlighted the main revisions to the Funding Strategy Statement (FSS) which established how scheme employers in the Pension Fund were treated.  The Committee noted that the amendments were very straight forward with minor changes being made to bring it in line with legislation. The one major change was that so called ‘trapped surpluses’ were no longer relevant. These occurred where employers had paid contributions over the life of their contract that were more than required to fund liabilities at cessation i.e. a surplus of contributions. Previously any credit amounts could not be paid back to employers. The Government had now introduced new regulations allowing Funds to pay back surplus money. This provision was included in the cessation agreement.

It was noted that the draft FSS was circulated to employers in the Fund for consultation preceding this Committee meeting and no comments had been received requiring any adjustments.

The Committee also noted that Coram had been late in responding and had not agreed to the circulated FSS although they had given no explanation and it was not obvious why they would disagree to the change given it gave employers a better participation basis (i.e. refunding of surpluses). Officers had tried to contact them with a view to discussing this but Coram had not responded.

RESOLVED 

THAT the revised Funding Strategy Statement be agreed as set out in Appendix A.

ACTION BY: Executive Director Corporate Services

Report of the Executive Director Corporate Services

This report updates the employer register for all the admitted bodies in the Pension Fund and relevant data for the Committee to review in light of their funding positions and scheme status.

This report has an appendix which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication. The appendix has therefore been circulated to Committee Members only.

If the Committee wishes to discuss the contents of a closed exempt appendix it may pass the proposed resolution identified at the end of the agenda to exclude members of the public and the press from the proceedings for that discussion.

Consideration was given to the Executive Director Corporate Services.

The Committee noted that the report updated the employer register for all the admitted bodies in the Pension Fund and relevant data for the Committee to review in light of their funding positions and scheme status. The latest available employer financial statements and membership numbers including triggers for each of the traffic lights were set out in Appendix A to the report. It was noted that this was a confidential appendix containing confidential information which Committee Members had read and would take into account when making the decision.

RESOLVED –

THAT the contents of the report be noted.

Report of the Executive Director Corporate Services

This report sets out a proposal from the Council, as the major employer in the Fund, to prepay its secondary contributions early.

This report has an appendix which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication. The appendix has therefore been circulated to Committee Members only.

If the Committee wishes to discuss the contents of a closed exempt appendix it may pass the proposed resolution identified at the end of the agenda to exclude members of the public and the press from the proceedings for that discussion.

Consideration was given to the report of the Executive Director Corporate Services.

The Committee noted that the Funding Strategy Statement, which governed how employers make contributions to the Fund, allowed for the Council (under stabilisation) to make additional payments over and above those certified by the Actuary. This report outlined the proposal by the Council to repay its 2019/20 deficit recovery (primary) contributions at the start of that year and then prepay the next three years primary contributions at the start of 2020/21. It was estimated that paying the 2019/20 secondary contributions early would make a saving of £350k in the amount the Fund would accept from the Council in order to receive their secondary contributions early on 1 April 2019 (instead of accruing monthly throughout the year). Furthermore, if it was assumed that the likely secondary contributions during the next valuation period were the same as the current cycle (£18.93m) then prepaying three years early on 1 April 2020 (rather than annually) would amount to a saving of £3.065m over that three year period. In total, therefore, the Fund could accept one year’s contributions early on 1 April 2019 (£18.58m) and 3 years’ contributions early on 1 April 2020 (£53.725m) which would lead to a total reduced payment from the Council of £3.415m.

The Committee noted that there was a confidential appendix to this report containing the Actuary's assessment of the benefits of prepayment and setting out some of the risks which Committee Members had read and would take into account when taking its decision.

In response to questions, the Head of Treasury and Financial Services informed the Committee that there was no risk from the Fund’s perspective. The actual economic benefit would depend on the investment returns generated by the Fund. If returns were negative for a period the financial benefits of this arrangement would be reduced. The Council’s main contributions were paid at regular monthly intervals, and therefore reduced the risk (and potential reward) of market losses (and gains) derived by investing at a high (or low) point in the market. Conversely, paying a large lump sum contribution concentrated the risk on the market conditions applicable at that time, so if the market was “high” then it would dilute the financial benefit to the Council; if instead it proved to be a relative market “low” then it would deliver a larger financial benefit.

It was noted that several councils in other LGPS funds prepaid their contributions in this way and neither the Actuary, Hymans Robertson, nor Karen Shackleton, the Independent Advisor, had concerns about the appropriateness of this approach.

The Committee noted that if it agreed that the Council could prepay its secondary contribution as discussed, the Cabinet would need to take the decision to do so at its meeting on 12^th December 2018. If any unforeseen circumstances were to arise between that date and 1^st April 2019, the Cabinet could reconsider its decision.

At this point in the proceedings the Committee noted that the  ...  view the full minutes text for item 13.

Report of the Executive Director Corporate Services

This report brings Members up to date with engagement activity undertaken by the Fund and LAPFF (the Local Authority Pension Fund Forum) since the last Committee meeting.

Consideration was given to the Executive Director of Corporate Services

It was noted that the last LAPFF meeting was held on 10th October 2018 which was attended by Councillor Russell and the Head of Treasury and Financial Services. A number of interesting items were considered at that meeting on renewable energy, gender diversity in the IT sector, board level representation amongst other work. Officers were asked to circulate those reports to Committee Members.

            ACTION BY: Executive Director Corporate Services

Committee Members were saddened to note the recent death of Councillor Greenwood from Bradford Council who had been Chair and a member of the Executive and had worked tirelessly on the aims of LAPFF. They asked for their condolences to be passed onto his family.

ACTION BY: Executive Director Corporate Services

RESOLVED –

THAT the report be noted

Report of the Executive Director Corporate Services

This report provides a quarterly update on developments at the London CIV in creating sub-funds for the spectrum of asset classes, on-boarding of assets and development of the CIV’s staff resource. Progress with the London CIV contributes to the Government’s pooling agenda and drive to reduce costs in the LGPS.

Consideration was given to the report of the Executive Director Corporate Services.

The Committee noted the quarterly update on developments at the London CIV in creating sub-funds for the spectrum of asset classes, on-boarding of assets and development of the CIV’s staff resource. Progress with the London CIV contributed to the Government’s pooling agenda and drive to reduce costs in the LGPS.

RESOLVED –

THAT the contents of the report be noted and any comments on progress be fed back to the Chair and officers.

            TO NOTE: All

Report of the Executive Director Corporate Services

This report sets out items scheduled for future agendas of this Committee together with a record of training/meetings attended and a list of future training opportunities.

Consideration was given to the report of the Executive Director Corporate Services.

The Head of Treasury and Financial Services explained that this report set out items that were proposed to be included on the agendas for future meetings of the Committee, and details of training opportunities for Members and officers to plan to stay informed on upcoming topics. Committee Members were reminded to let either the Chair or the Head of Treasury and Financial Services which sessions or meetings with Investment Managers they would be interested in attending.

            TO NOTE: Committee Members

Committee Members asked that they be advised of dates of any training sessions or meetings as far in advance as possible.

ACTION BY: Executive Director Corporate Services

As previously mentioned, it was noted that the following items would be added to the list of items:

-       Fixed Income mandate - 27^th February 2019

-       Standard Life performance report – June 2019

            ACTION BY: Executive Director Corporate Services

There was no urgent business.