Agenda and minutes

Apologies for absence were received from Councillor Johnson. Apologies for lateness were received from Councillor Tiwari and apologies for leaving early from Councillor Russell.

Councillor Olad declared a pecuniary interest in respect of item 10 “Fixed Income Review”, as CQS, a London CIV multi asset credit sub-fund was one of his clients and he confirmed he would leave the meeting for that item.

There were no deputations.

(a)        Pension Board Appointment

It was noted that Steve Worrall, Pensions Technical Manager with Veolia had been appointed as the Employer representative on the Pension Board and would attend his first Pension Board meeting on 13^th March 2019.

(b)       London CIV CEO appointment

The Committee noted that Mike O’Donnell, who had previously been the Executive Director Corporate Services at Camden, had been appointed as Chief Executive Officer (CEO) at the London CIV.

(c)        ESG Seminar

The Pension Committee noted that an ESG seminar would be held on 20^th March from 4pm to 8pm, to which all Committee Members were invited to attend. The Chair recognised that the seminar stretched over a four hour period, and stressed its usefulness and importance for Committee Members suggesting that, if they had other commitments, they could attend for part of it.

Karen Shackleton, independent advisor, would be giving a presentation on “Pensions for Purpose” and officers from legal services would be presenting an item on “the legal perspective of screening and segregation of stocks within LGPS funds”. Committee Members were asked to suggest items that they would like to be included in the seminar.

Once the agenda was finalised the invitation to attend would be extended all Members of the Council.

(d)       Order of Business

The Chair suggested and it was agreed that item 13 “Engagement Report” should be taken after item 8, as Alan McDougall, Managing Director of PIRC was present at the meeting for items 7 and 8. The remaining items were considered in the order in which they appeared on the agenda.

There were no urgent items.

To approve and sign the Minutes of the meeting of the Pension Committee held on 29^th November 2018.

RESOLVED –

THAT the minutes of the meeting held on 29^th November be approved and signed as a correct record.

Report of the Executive Director Corporate Services

This report reviews the proxy voting carried out by the Pension Fund during the calendar year to December 2018. Advisory services are provided by Pensions & Investment Research Consultants Ltd (PIRC).

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

The Fund attached great importance to its voting rights on investments owned and had been voting on its shares at the Annual and Extraordinary General Meetings of companies since 1996, in order to add shareholder value by seeking to ensure that companies were soundly run. The Camden Pension Fund employed a corporate governance advisor, Pensions & Investment Research Consultants Ltd (PIRC), to review company voting resolutions and execute the proxy votes of the Fund in accordance with its policy.

The Committee noted the review and analysis of the voting that had been undertaken by the Fund during the calendar year to December 2018, as executed by PIRC.

Alan McDougall, Managing Director (PIRC), was present at the meeting and summarised the main issues and answered questions as follows:

·         During the period under review the fund voted 11,495 resolutions (2017: 11,721) at 828 meetings (2017: 788).

·         Of all meetings voted by the fund globally, 79% were AGMs (2017: 83%).

·         In broad terms 92% of the meetings were in the UK (2017: 90 %), 4.8% were in Europe (2017: 4.4%) and 2.2% were in North America and Canada (2017: 3.1%).

·         Each of the remaining regions accounted for 1.1% (2017: 2.3%) of the sample.

·         The fund supported just under three quarters of the resolutions that it voted on.

·         In the UK, in the case of remuneration reports, the fund supported 41% (2017: 50.57%) of resolutions and opposed 59% (2016: 49.43%). In the case of remuneration policies, the fund opposed more resolutions (75% (2017: 69%)) than it supported (25% (2017: 31%)).

·         In the UK, Board related issues as a resolution category accounts for 4,109 resolutions, 39% of all resolutions voted.

·         The fund supported 75% of all directors who sought election.

With regard to gender diversity the Committee noted that:

o     Female directors represented 25.56% of directors on FTSE 350 Boards

o     Seven companies had an all-male Board of Directors at the time of their AGM

o     69 boards had achieved the Hampton-Alexander target of 33% female representation

o     Two companies, Jupiter Fund Management and Ascential had reached gender parity

o     No female held the position of Chairman and Chief Executive or Executive Vice chairman.

o     4% of Chief Executives were women.

o     Female representation across the Board was sufficiently high in companies with a female Chief Executive or female Chairman (in excess of 30%).

o     Per industry, the largest female representation was identified in the utilities sector; the least diverse industry was the technology sector.

Committee Members were concerned that 7 companies still had no women on their Board of Directors and asked if those companies could be named and whether or not the Fund had invested in them. The Head of Treasury and Financial Services agreed to submit a report to a future meeting of the Committee on the diversity of the Fund’s investment managers.

          ACTION BY: Executive Director Corporate Services

The Committee asked for future PIRC annual review reports to include more  ...  view the full minutes text for item 7.

Report of the Executive Director Corporate Services.

This report sets out the proposed guidelines and forms the policy on which Camden will submit proxy voting on shares held in the Camden Pension Fund.

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

The Committee noted the proposed guidelines and forms the policy on which Camden would submit proxy voting on shares held in the Camden Pension Fund. The Head of Treasury and Financial Services explained that the Fund took its Corporate Governance responsibilities and the exercise of its voting rights very seriously. PIRC advised the Fund on appropriate voting guidelines for the coming year ahead of the voting season which started after March.

Alan McDougall, Managing Director (PIRC) and Janice Hayward, Client Services Director were present at the meeting to discuss any specific items and answer questions.

The Fund had specifically asked to strengthen the voting policy concerning diversity and climate change and as a consequence the following changes had been made:

Diversity:

Oppose when:

·       Less than 33% female directors (FTSE350)

·       Less than 20% female directors (FTSE Small Cap) (same as the 2018 policy)

Climate change/ Fossil Fuels/Paris agreement:

For UK and US, some members of the Board and Sustainability committee would be opposed.

For Camden, PIRC would oppose the annual report for lack of disclosure and/or oppose chair for “inaction” when:

·       The Group did not have an adequate policy regarding Environment and Climate Change.

·       The Company did not adequately quantify carbon emissions in its annual report (or equivalent).

·       The Company did not report adequately on climate risk in the strategic report (or equivalent).

And/or oppose the Chair:

·       If the entire board or a dedicated committee or any specific board member was not in charge of ESG issues.

·       If there was not at least one member of the Board or Senior Management with significant ESG experience within the sector of the Company.

It was noted that to aid review, amendments to the policy had been made in track changes on Appendix A “Camden voting policy statement from PIRC”.

Committee Members noted that a board size was not set by statute so could be any size, although 20 or more was considered too large.

The Committee proposed and asked that:

o   The seven companies with no women on their boards should be named.

o   Ethnicity on boards should also be reviewed.

o   The reason why PIRC opposed a company’s annual report should be disclosed and included in future reports to the Committee.

ACTION BY: Executive Director Corporate Services

RESOLVED –

THAT the proposed voting policy on which Camden will vote its shares, be approved as set out in Appendix A of the report.

          ACTION BY: Executive Director Corporate Services

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 31 December 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 31^st December 2018.

The Committee noted in particular that

-        The Fund portfolio had a market value of £1.560bn at 31^st December 2018 compared with £1.701bn at 30^th September 2018.

-        The UK Consumer Price Index (CPI) measure of inflation fell to 2.1% in December 2018, which was down from 2.3% in November, and was the lowest rate since January 2017.

-        Total fund liabilities were estimated to be £1.873bn as at 31 December 2018, with assets valued at £1.562bn giving a theoretical estimated funding ratio of 83.4%. The last full valuation was carried out based on March 2016 data and reported to Committee in September 2016. At the time, this showed a marginal improvement in funding to 76.2%, a 0.6% increase on the previous triennial valuation. The proxy measure suggested liabilities had grown by 12% (or £234m) since the last valuation date. Although gilt yields were higher than at the time of the valuation (thereby decreasing the liabilities discounted by this rate), investment returns had been higher and assets had grown by £313m (or 25%) during the same timeframe.

-        The global economy continued to show signs of a possible slowdown as many major economies were advancing towards the latter stages of the business cycle. The final quarter of 2018 was not good for markets. Global equity markets suffered sharp declines underpinned by global growth concerns, trade tensions and political uncertainty. US equities declined particularly steeply in December, and the S&P 500 fell by 13.8% over the quarter. Credit markets also struggled in Q4. Bond yields declined (prices rose), in line with the outlook for global growth, increased risk aversion and volatility.

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 - This sub-fund delivered a return of

-12.5% in Q4, bringing the 2018 return to -4.15%. The fund underperformed the target by -2.56% in Q4. The fund’s exposure to the US, UK and Ireland was attributed by the London CIV to the underperformance in Q4, following the sell-off in markets. In terms of assets under management, the LCIV sub-fund stood at £2,091.8 million as at end December. London Borough of Camden’s investment represents 11.90% of the Fund.

(b)    Harris –  ...  view the full minutes text for item 9.

Report of the Executive Director Corporate Services

This report presents the background to the Insight Investment absolute return bond strategy (ARBS) mandate and includes work by our Investment Consultant, KPMG in reviewing the mandate and making recommendations about the future given CIV and other fixed income ideas.

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 a report of the Executive Director Corporate Services.

As mentioned at item 2 above, Councillor Olad declared a pecuniary interest as CQS, a London CIV multi asset credit sub-fund, was one of his clients. He left the meeting during consideration of this item.

The Head of Treasury and Financial Services presented the report which set out the background to the Insight Investment absolute return bond strategy (ARBS) mandate and included work by Camden Fund’s Investment Consultant, KPMG, in reviewing the mandate and making recommendations about the future given London CIV and other fixed income ideas.

It was noted that Insight replaced ‘traditional’ bond manager Goldman Sachs at the beginning of 2014, with Camden transferring approximately £120m to their Insight Bonds Plus 400 fund which was an Absolute Return Bond Strategy (ARBS). Funds with Insight stood at £125m as at the end of December 2018.

Committee Members were reminded that they had explored the poor performance of Insight over the previous quarters and years. Currently Insight had delivered one year underperformance of -10.6% relative to their target and since inception -3.9% versus that same target (LIBOR +4%). On an absolute basis, Insight had delivered -5.8% over one year and since inception had added 0.6% to funds originally transitioned to them. Insight were chosen as they were judged the best product amongst the three finalists both based on their tender submission and at interview.

At the time of the appointment interest rates were expected to rise, and bond capital values forecast to fall. The Fund, therefore, sought an alternative approach to bond investment. Insight used bond investments to deliver consistent positive returns in excess of cash, with no permanent exposure to bond markets (unless they offered value), and the ability to benefit from falling markets through use of derivatives to take ‘short’ positions. The mandate was expected to achieve positive returns in all market conditions, but might be expected to perform better when interest rates rise and when there were significant opportunities to take relative trades, and less well when interest rates fall.

When the Fund invested in Insight, it was agreed that the mandate could be reviewed for a number of reasons, including when significant underperformance relative to other absolute return bond funds occurred.

Camden Fund’s Investment Consultant, KPMG had been asked to review the ARBS mandate and the fixed income strategic asset allocation in general and make recommendations to this Committee. The Committee noted that the results of KPMG’s review was attached at Appendix B to the report. This was a Part II appendix, as it contained commercially sensitive and confidential information about investment managers and was, therefore, not available to the public. Whilst recognising this, Councillor Madlani stated that he wished the advice given by the advisors and officers to be provided in the open (Part I) part of the meeting.

Dave Lyons, Head of Public Sector Investment Advisory, Tax and Pensions Investment Consultant at KPMG, was present at the meeting and summarised the key  ...  view the full minutes text for item 10.

Report of the Executive Director Corporate Services

This report updates Committee on the London Collective Investment Vehicle’s (CIV) infrastructure proposal.

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 a report of the Executive Director Corporate Services.

The Head of Treasury and Financial Services presented the report which provided an update on the London Collective Investment Vehicle’s (LCIV) infrastructure proposal and recommends to invest in the sub fund StepStone

Kevin Cullen, Client Relations Director. LCIV was present at the meeting and summarised the infrastructure proposals and answered questions as follows:

·         It was noted that LCIV had decided to use an ‘outsourced Head of Infrastructure’ structure and intended to appoint StepStone to this role after an extensive search.

·         The LCIV discussed the Head of Infrastructure model with industry contacts and Infrastructure houses. 12 parties were identified covering advisors, partnership models and consulting specialists. Initial meetings were held with all 12 parties to gauge depth and experience of their teams, global footprint, approach to infrastructure, business models and fees.

·         Four parties were shortlisted and a further due diligence exercise was undertaken focusing on experience, investment process, asset management, ESG and partnership working.

·         The structure of the fund would be an exempt unauthorised unit trust with the LCIV's custodian Northern Trust acting as master trustee. The structure would include a limited partner advisory committee with veto rights.

·         StepStone did not run a fund of funds infrastructure fund but had returned 17.7% net internal rate of return. They ran $14bn of assets and had a global presence. The LCIV has an initial contract with StepStone for a minimum of 3 years, which gave them flexibility to appoint a successor Head of Infrastructure partner, should things not go according to plan.

·         One of the key advantages of the structure was that there was no element of fees charged on uncommitted capital. This incentivises StepStone to invest capital as quickly as possible whilst ensuring that management fees were not charged on uninvested cash. This should ensure investors were not over charged for ‘slow’ capital in. Other pools could not offer an optimal structure so the LCIV have chosen to go to market alone. However, the LCIV would consider club deals with other pools in the future.

·         If the Committee agreed to this investment, Camden would be the 10th London Borough to invest with CQS.

It was noted that the LCIV were in the process of submitting the proposal to the Financial Conduct Authority for approval and hoped to launch the fund in April 2019.

At this point in the proceedings the Committee noted that the meeting had lasted for nearly the maximum time of 3 hours and it, therefore, agreed to move standing orders to extend the meeting for a further 30 minutes in order to finish the business on the agenda.

The Committee noted that Camden Fund’s Investment Consultant, KPMG had provided a review of the LCIV infrastructure fund which was attached at Appendix A to the report. This was a Part II appendix, as it contained commercially sensitive and confidential information and was, therefore, not available to the public. Whilst recognising this, Councillor Madlani stated that he wished the  ...  view the full minutes text for item 11.

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 a report of the Executive Director Corporate Services.

The Committee noted 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. It also presented the recent pooling guidance issued by Ministry of Housing, Communities and Local Government in January. Progress with the London CIV contributed to the Government’s pooling agenda and drove to reduce costs in the LGPS.

RESOLVED –

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

ACTION BY:   Executive Director Corporate Services

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 a report of the Executive Director Corporate Services.

The Committee noted a summary of the engagement activity undertaken by the Fund and the Local Authority Pension Fund Forum (LAPFF) since the last Committee meeting together with the fund’s voting activity in the quarter. Committee Members also noted updates on the Competition and Markets Authority (CMA) review of the audit market, reliable accounts, tobacco, disruptive technology and the APPG on Local Authority Pension Funds.

The Chair informed the Committee that he had attended the last LAPFF meeting with the Head of Treasury and Financial Services and encouraged Committee Members to attend the next meeting on 3^rd April 2019.

Alan McDougall, Managing Director, PIRC said that he would be pleased to attend future Committee meetings if it was felt to be helpful and would send the Head of Treasury and Financial Services the new Corporate Governance report for circulation to Committee Members.

ACTION BY:   Executive Director Corporate Services

RESOLVED –

THAT the contents of the report be noted.

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.

It was noted that originally the provisional date of 5^th February 2020 was suggested, but this date was too early and would present a problem in respect of obtaining the necessary information to report to Committee with regard to performance. The date had subsequently been changed to 3^rd March 2020.

RESOLVED –

THAT the report be noted.

The provisional dates for meetings of the Pension Committee being to be held during the 2019-20 Municipal Year are set out below:

Thursday, 18^th July 2019

Thursday 12^th September 2019

Tuesday, 26^th November 2019

Tuesday, 3^rd March 2020

Dates for all meetings being held during the 2019-20 Municipal Year will be confirmed at the Statutory Council meeting in May 2019.

The Committee noted the provisional dates for meetings of the Pension Committee being to be held during the 2019-20 Municipal Year are set out below:

Thursday, 18th July 2019

Thursday 12th September 2019

Tuesday, 26th November 2019

Tuesday, 3rd March 2020

Dates for all meetings being held during the 2019-20 Municipal Year will be confirmed at the Statutory Council meeting in May 2019.

TO NOTE :   ALL

There was no urgent business.