Agenda and minutes

Apologies for absence were received from Councillors Lorna Russell and Shiva Tiwari.

There were no declarations.

There were no deputations.

1.              Triennial Valuation Process Training

The Chair thanked the five Committee Members who attended valuation training on 4^th September 2019. It was noted that the presentation slides would be sent to those Members who had been unable to attend. He reminded Members that every effort should be made to attend these training sessions to demonstrate knowledge and understanding and because of the MiFID directive which required the Fund to demonstrate Trustee expertise. The London CIV also required the Fund to provide evidence training in order to invest in sub-classes and opt up under MiFID.

2.               Investor Belief Statement Workshop – 2^nd October 2019

The Chair reminded Members that the Fund was holding an Investor Belief Statement Workshop on 2^nd October from 6-8pm, an invite to which had been sent to all Committee Members. The session would be led by Karen Shackleton and supported by KPMG and others. He stressed that this was an important first step for the Fund and would enable Committee Members to have an input. It would lead to an item on this being brought back to the November meeting.

3.               ESG and Strategy Forum – 16^th October 2019

The Committee noted that the London CIV would be holding an ESG (Environment, Social and Governance) and Strategy Forum on 16^th October 2019 at the Science Gallery near the Southbank (lunch would be provided). The morning session would cover ESG and the afternoon session would cover Strategy. Members were encouraged to attend as the London CIV aimed to look across the industry and select best practices in order for Funds to implement their own Responsible Investment policies. Officers would be sending an invite to all Committee Members.

4.               Order of Business

The Chair proposed and it was agreed that item 13 “London CIV Progress Report” would be taken after item 7 “Performance Report” as representatives from the London CIV were in attendance for both items. The remaining items were considered in the order in which they appeared on the agenda.

There was no urgent business.

To approve and sign as a correct record the Minutes of the meeting of the Pension Committee held on 18^th July 2019.

RESOLVED –

THAT the minutes of the meeting held on 18^th July 2019 be approved and signed as a correct record.

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 June 2019.

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 the performance of the Camden Pension Fund investment portfolio and the individual investment managers for the quarter ended 30th June 2019 (quarter 2 of 2019).

The Committee noted in particular that

-        The Fund portfolio had a market value of £1.752bn at 30^th June 2019 compared with £1.659bn at 31^st March 2019.

-        Total fund liabilities were estimated to be £1.938bn as at 30^th June 2019, with assets valued at £1.752bn giving a theoretical estimated funding ratio of 90.4%. 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 18% (or £299m) 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 £504m (or 40%) during the same timeframe.

-        As at Q1 (2019), the Fund assets had outperformed long term target set at the triennial valuation in 2016 by 15% (£215m).

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 had a good Q2, delivering a return of +7.7%, and outperformed the Index by +1.42% for the quarter but had underperformed the Index by -1.32% for the 12 months. In terms of assets under management, the LCIV sub-fund stood at £2,689.4 million as at end June, an increase of £219 million since the previous quarter end. London Borough of Camden’s investment represented 11.2% of the Fund.

(b)    Harris – Harris’ stock selection had a positive impact, contributing +0.58% to the relative return in Q2 2019, with sector selection also contributing +0.66%. The past twelve months for Harris had, however, been challenging, with the fund trailing its target by 11.5%.  As at quarter end, the fund had 48.0% allocated in Europe, 39.9% in the US, with the balance in Asia/emerging markets.

(c)    Insight - The fund performed negatively in absolute terms (-1.0%), and in relative terms it underperformed by -2.2% in Q2 2019. Following the Committee’s decision at the February meeting, a phased exit of this fund was now underway, with cash from redeemed units  ...  view the full minutes text for item 7.

Report of the Executive Director Corporate Services

This report presents comparative analysis of the Fund’s investment managers performance on Environment, Social and Governance issues against peers/ national indicators.

Consideration was given to a report of the Executive Director Corporate Services, which presented comparative analysis of the Fund’s investment manager’s performance on Environment, Social and Governance (ESG) issues against peers and national indicators.

Tom Powdrill and Lara Blecher from PIRC, on behalf of LAPFF, were in attendance at the meeting and highlighted the main points contained in the report.

The Committee noted the proportion of Fund assets invested in fossil fuel companies, the progress that the Fund had made in the transition to a low carbon investor/Fund and how its current investment managers were rated by the leading proponents of responsible investment.  It also noted investment managers’ performance on issues such as gender pay gap and diversity of corporate board and senior management.

With regard to table 3 on page 60, the Chair expressed concern that there was no information on the gender pay gap from CQS, HarbourVest and Ruffer. He said that he would be writing to them to ask that they provide this information in future for the sake of transparency.

          ACTION BY: Executive Director Corporate Services

It was noted that some work had been undertaken around the fiduciary duty imposed on administering authorities of pension schemes. Officers were asked to circulate this information to Committee Members.

ACTION BY: Executive Director Corporate Services

The Chair thanked officers and LAPFF for this first report and said that regular reports would be presented to the Committee on an annual basis.

TO NOTE: Executive Director Corporate Services

RESOLVED -

THAT the contents of the report be noted.

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 report of the Executive Director of Corporate Services, which provided an update of the engagement activity, including the voting record, undertaken by the Fund and LAPFF (the Local Authority Pension Fund Forum) since the last Committee meeting.

The LAPFF held its Annual General meeting (AGM) on 17^th July 2019. A business meeting followed the AGM which was attended by the Chair of the Pension Committee and the Head of Treasury and Financial Services. 

The LAPFF had produced a quarterly engagement report to give an overview of the work undertaken, which was attached at Appendix A to the report. It summarised the achievements during the quarter and listed engagements undertaken with a number of companies. Tom Powdrill and Lara Blecher from PIRC, on behalf of LAPFF, were in attendance at the meeting and highlighted the work being done and spoke about some of the engagements they had been involved with

Some of the main areas highlighted in the quarterly report were:

-        reliable accounts

-        governance

-        tailing dams (these were used to store mining by products which were usually toxic. There had been many failings of these dams causing devastation to nearby villages and the environment and recently there were breaches in the Brumadinho dam in Brazil)

-        Climate change and low carbon transition

It was noted that a climate risk survey would be circulated to all Pension Funds and pools in September with the aim of sharing best practice. The outcome would be reported to a future Forum meeting.

The next Forum business meeting would be taking place on 9^th October 2019 at Church House, Westminster starting at 10.45 am. It was noted that diary invitations for all future Forum business meetings would be sent to Pension Committee Members and the Chair urged Members to attend at least one meeting a year.

ACTION BY:  Executive Director Corporate Services

                     Committee Members

RESOLVED –

THAT the contents of the report be noted.

Report of the Executive Director Corporate Services

This report considers the contribution strategy for the Council as the major employer in the Pension Fund, amongst 26 other much smaller employers. It considers the current stabilisation strategy that is applied to the Council and presents analysis from the Fund’s actuary for four different contribution strategies to be applied from 1 April 2020.

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 regarding the contribution strategy for the Council as the major employer in the Pension Fund, amongst 26 other much smaller employers. The Committee also considered the current stabilisation strategy that was applied to the Council and an analysis from the Fund’s actuary for four different contribution strategies to be applied from 1^st April 2020.

The Committee noted that Camden Fund’s Actuary, Hymans Robertson, had provided an analysis which discussed combined contribution rates that include the primary rate (for future service accrual and ignoring deficit recovery) and the secondary rate (for deficit recovery), 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. Councillor Madlani was of the view that too much information was contained in the closed document which inhibited governance and transparency. He would be speaking to his counterparts to ask how their respective Actuaries provided similar information. He was also not impressed with the cost suggested by the Actuary to provide future documents in a form that could be made available to the public. Councillor Madlani stated that he wished as much of the discussion to be held in the open (Part I) part of the meeting. He added that Committee Members had read the appendix and would take it into account when making the decision.

Douglas Green and Barry Dodds from Hymans Robertson were present at the meeting and summarised the key points contained in their valuation report.

It was noted that Hymans had modelled four contribution rate scenarios for the Council and 5,000 future investment return scenarios, as set out below:

·       Increase by 1% in the next three years and then fix the rate for a further 2 years followed by +/-1% stabilisation thereafter

·       Freeze the current rate of 32% for 5 years and then use stabilisation (+/-1%) afterwards

·       Freeze the contribution rate of 32% for 5 years and then use a stabilisation (+/-1%) afterwards – but set a cap of 32% in any year

·       Reduce by 1% in the next three years and then fix the rate for a further 2 years followed by +/-1% stabilisation thereafter

It was explained that the contribution rate scenarios were projections of how Council contributions might increase or decrease over time. The scenarios were for the next triennial valuation period and then a further 2 years, with stabilisation following in the longer term. The reason the modelling used a specified rate for years 4 and 5 was due to the uncertainty around the period until the next formal actuarial valuation date caused by the potential alignment of all public sector pension scheme valuations.

The analysis showed that the current stabilisation approach (requiring Council contribution rate increases each year in the next 3 years of 1% of pay each year) remained fit for purpose and would deliver acceptable outcomes with a high enough chance of  ...  view the full minutes text for item 10.

Report of the Executive Director Corporate Services

This report presents the initial whole fund results of the triennial valuation from the Pension Fund’s actuary (Hymans Robertson).

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, which presented the initial whole fund results of the triennial valuation from the Pension Fund’s Actuary, Hymans Robertson.

The Committee noted that Hymans Robertson had provided an initial valuation report of the Fund’s assets and liabilities as at 31st March 2019, 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 as much of the discussion to be held in the open (Part I) part of the meeting. He added that Committee Members had read the appendix and would take it into account when making the decision.

Douglas Green and Barry Dodds from Hymans Robertson were present at the meeting and summarised the key points contained in their valuation report.

It was noted that Hymans Robertson had used a discount rate which calculated a range of future investment returns using 5000 economic outcomes and then takes a rate which gives a 70% probability of achieving fully funded status over the deficit recovery period of 17.5 years. The discount rate used was 4.5% over the next 20 years and assumed that over that period the investment strategy was not changed or returns diluted by, for example, a move to a lower risk strategy (more bond type investments) which would result in lower returns. Liabilities were the same as 2016 at £1.6bn. However, the assets had increased by 32% from £1.2bn to £1.6bn so the deficit had reduced from £390m in 2016 to a surplus of £41m as at March 2019. It was noted that the 2016 valuation was based on a 3.8% discount rate (a ‘gilts +’ approach) whereas the 2019 valuation was based on discounting liabilities by the prudent expected asset growth over the long term. This gave a discount rate of 4.5% used in the 2019 triennial valuation and effectively made the liabilities appear smaller at today’s values as a greater investment return has been assumed (based on detailed modelling of potential returns). The Fund, therefore, needed to continue with its current asset allocation if it was to achieve the full funding.

The Committee noted that the funding level had increased from 76.2% to 102.5%. Over this triennial valuation period the Fund’s assets had grown by 32.5% rather than the forecast asset growth of 12% (3.8% annual expectation versus an annualised 9.8% growth). The actuarial valuation report also showed the sensitivity of the funding level to changes in inflation (consumer price inflation or CPI) and changes to longevity (how long members live), two key actuarial assumptions that impact the valuation and funding level.

Committee Members noted that the final results must be agreed by all employers and the Council before 31st March 2020. Once agreed, the Actuary would issue the final contribution report with a rates and adjustments schedule detailing each employer’s individual contribution rate over the  ...  view the full minutes text for item 11.

Report of the Executive Director Corporate Services

The Pension Fund is required to produce an Annual Report under the Local Government Pension Scheme Regulations 2013/2356. This report presents the 2018/19 Annual Report to the Pension Committee.

Consideration was given to a report of the Executive Director Corporate Services, which presented the 2018/19 Annual Report. It was noted that the Pension Fund was required to produce an Annual Report under the Local Government Pension Scheme Regulations 2013.

The annual report brought together the Fund's key documents and statements into a single repository including:

- 2018/19 Pension Fund Accounts and Net Assets Statement

- Governance Compliance Statement (updated)

- Funding Strategy Statement (unchanged from December 2018)

- Investment Strategy Statement (unchanged from March 2017)

- Communication Statement (unchanged)

- Risk Register (unchanged from July 2019)

The report provided an outline of Camden’s governance and management of the Local Government Pension Scheme and an update of the cost of administering the scheme. The Committee noted that for 2018/19, scheme administration was £24.47 per member of the Fund compared to £23.45 the year before. It also provided an update on investment policy and performance for the past year, including a review of investment markets, individual managers’ performance and details of the Fund’s investments and asset allocation.

Councillor Madlani was pleased to remind Members that the Fund had been recognised for its hard work and leading-edge approach to ESG issues by winning the LAPF Award for Best Approach to ESG/Impact Investing in the year. The Fund would continue to work hard in this area to ensure ESG was embedded into every aspect of the Fund’s strategy and investments. He confirmed that he would add a reference to this in his forward to the report.

          ACTION BY: Councillor Madlani

                              Executive Director Corporate Services

It was noted that once the report was agreed, a final version would be shared on the Council’s pension fund website.

RESOLVED –

THAT the 2018/19 Pension Fund Annual Report be approved, as attached at Appendix A and subject to the above amendment to the Chair’s forward.

          ACTION BY: Executive Director Corporate Services

Report of the Executive Director Corporate Services

This report provides a quarterly update on developments at the London Collective Investment Vehicle (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 Local Government Pension Scheme (LGPS).

Consideration was given to a report of the Executive Director Corporate Services, which provided a quarterly update on developments at the London Collective Investment Vehicle (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 Local Government Pension Scheme (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 a report of the Executive Director Corporate Services, which set out items scheduled for future agendas of this Committee together with a record of training/meetings attended and a list of future training opportunities.

Committee Members were advised to inform the Head of Treasury and Financial Services if they wished to attend the meetings with Investment Managers or any training sessions.

TO NOTE: ALL

RESOLVED –

THAT the contents of the report be noted.

There was no urgent business.