Agenda and minutes
Venue: Boardrooms 4, 5 and 6 - Brent Civic Centre, Engineers Way, Wembley, HA9 0FJ
Contact: Toby Howes, Senior Democratic Services Officer 020 8937 1307, Email: toby.howes@brent.gov.uk
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Declarations of personal and prejudicial interests Members are invited to declare at this stage of the meeting, any relevant financial or other interest in the items on this agenda. Minutes: Councillor Perrin advised that he was a Brent pensioner, however he did not view this as a prejudicial interest and remained present for the entire meeting to consider all items on the agenda. |
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Minutes of the previous meeting held on 30 September 2014 PDF 82 KB The minutes are attached. Minutes: RESOLVED:-
that the minutes of the previous meeting held on 30 September 2014 be approved as an accurate record of the meeting. |
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Matters arising Minutes: Review of fund managers
Julian Pendock (Investments and Pensions Manager, Finance and IT) clarified an issue raised at the last meeting in respect of stock lending, advising that fund managers do not disclose whether they undertake such an activity, however in reality it was an action that occurred in passive fund managers, also known as trackers. He added that councils would jointly, through the collective investment vehicle, pressurise fund managers to share the proceeds which emanate from stock lending. He confirmed that the council itself did not directly lend stock. |
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London pension fund collaboration (collective investment vehicle) PDF 727 KB The report provides an update on the voluntary collective investment vehicle (CIV) which is being developed by the London Leaders. Minutes: Julian Pendock introduced the report and explained that the Government had been suggesting for a while that local authorities should be encouraged to merge funds as a more effective way to obtain higher returns. However, there was no information to specifically suggest that there was a direct correlation between a fund’s size and its return. Members heard that 30 out of 33 London boroughs, including Brent, were participating in a voluntary collective investment vehicle (CIV) based on a mutual attraction. Julian Pendock informed the committee that the London Leaders and Society of London Treasurers had been comparing a range of options for closer fund pension collaboration and the preferred option was a CIV that operated on a voluntary basis. He advised that the CIV was working closely with the Baillie Gifford Diversified Growth fund with a view to incorporating it onto the CIV. Members heard that the CIV was working with a number of organisations, such as Deloittes, in facilitating the CIV and it was recommended that the council contribute an additional £50,000 for the set up costs of the CIV, with one payment of £25,000 being requested now, and the remaining £25,000 anticipated in April 2016.
During members’ discussions, it was commented that some boroughs within the CIV may be minded to continue investing with the same organisations and individuals that they had known for a long while, and these relationships and investments would not be impacted by the CIV. It was queried what the total level of investment of the CIV would be and whether it represented a material amount. Further information on the lower fees and improved performance that the CIV would generate was requested. A member, in noting the amount that each partner borough was being asked to contribute towards the CIV, asked if London Councils was also making a contribution. The committee also asked how the council’s pension fund would be managed locally.
In reply to the queries raised, Julian Pendock emphasised that the CIV did not compel local authorities to commit to particular investments and there were also measures being taken to ensure transparency and the appropriate corporate governance arrangements. The CIV would be open to new ideas in how to achieve higher returns. Julian Pendock advised that there would be a gentle roll out in terms of investing in the CIV and there were some equities in particular that he would like to be included in its portfolio. There was potential for some significant returns in the medium to longer term, particularly in private equity. Members heard that the optimal structure of the CIV was being fine tuned, in consultation with the Financial Conduct Authority and HM Treasury. Julian Pendock advised that it was difficult to estimate the approximate savings that could be made through the CIV at this stage, however up to 20% could be achieved overall, on the basis of initial indications from consultations with fund managers. He added that presently there were a number of local authority pension funds ... view the full minutes text for item 4. |
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Monitoring report on fund activity for the quarter ended 30 September 2014 PDF 466 KB The report provides a summary of the Fund’s activity during the quarter ended 30 September 2014. It examines the actions taken, the economic and market background, and investment performance, as well as commenting on events in the quarter. Minutes: Julian Pendock introduced the report and advised that although relative performance for the quarter represented an improvement, overall the Fund continued to be one of the lower performing funds in the Local Government Pension Schemes (LGPS) universe. However, this could not be rectified in a short period of time and a thorough analysis of performance in a number of areas needed be undertaken before considering what changes could be made to improve returns on investments.
Peter Davies (Independent Adviser to the Fund) then addressed the sub-committee to report on economies, markets and currencies. He advised that since the report had been produced, equity markets had risen above the level they were at in September 2014, whilst bond yields had normalised. Meanwhile, sterling had continued to weaken compared to other currencies, whilst Brent crude oil, which fell 16% during the quarter, had fallen by a further 9% in the first three weeks of October 2014, which was a positive development for some. Members noted the FTSE capital returns for various markets as set out in the report. Members heard that Japan had increased spending on Government bonds, however it remained in recession and its policy of reflating the stock market did not appear to be working. It was noted that the Fund had few investments in Japan and so would not be affected. Peter Davies added that he expected equity markets to fall back again following their recent rise.
Tom Wright (Baillie Gifford) was then invited to give a presentation on the Fund. Tom Wright informed members that Baillie Gifford had been appointed by the council on 20 June 2012 to manage the diversified growth fund on the council’s behalf and had set a target to provide a return that outperformed the UK base rate by at least 3.5% per annum over rolling five year periods. A target of annualised volatility of less than 10% over rolling five year periods had also been set. Members noted the asset allocation and performance of the Fund and valuation from December 2008 to July 2014 and were advised that the net return of the Fund since 20 June 2012 was 6.9%. Tom Wright advised that there was some encouraging news in respect of improvements in economic data in parts of the developed world, such as the United States of America and good news from companies also gave grounds for optimism. However, risks remained and the end of quantitative easing and an increase in interest rates may hit some assets. Tom Wright added that many asset classes had benefitted from an accommodative monetary policy and now appeared expensive and so caution should be applied.
During discussion, a member enquired what the implications of the price of crude Brent oil going down would be. A member noted the slight increase in bonds returns and commented that the returns were likely to remain similar for the next three months. In view of this, he stated that there appeared to be a cautious approach in investing and that ... view the full minutes text for item 5. |
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Date of next meeting The next meeting of the Brent Pension Fund Sub-Committee is scheduled to take place on Tuesday, 24 February 2015 at 6.30 pm. Minutes: It was noted that the next meeting of the Brent Pension Fund Sub-Committee was scheduled to take place on Tuesday, 24 February 2015 at 6.30 pm. |
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Any other urgent business Notice of items to be raised under this heading must be given in writing to the Democratic Services Manager or his representative before the meeting in accordance with Standing Order 64. Minutes: None. |
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Exclusion of press and public The following report is not for publication as it contains exempt information as specified in Schedule 12A of the Local Government Act 1972, namely information relating to the financial or business affairs of particular persons (including the authority holding that information). Minutes: RESOLVED:
That the press and public be excluded from the remainder of the meeting as the reports to be considered contained the following category of exempt as specified in Schedule 12A of the Local Government Access to Information Act 1972, namely:
Information relating to the financial or business affairs of particular persons (including the Authority holding that information). |
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Diversified growth funds Minutes: Julian Pendock introduced the item and stated that a number of organisations and institutions were in a similar situation to the council in terms of their pension funds. He advised that Baillie Gifford managed multi-asset funds effectively on behalf of a number of local authorities. The advantage of multi-asset funds was that they afforded fund managers much greater tactical freedom and it was felt desirable to increase allocation in diversified growth funds and for these to be managed by a diversified growth manager.
During members’ discussions, a member sought further information about how diversified growth funds would help the Fund and would it be prudent to remain with the current asset allocation to maintain consistent returns, especially as the global economic situation was still volatile. He also asked what proportion of the Fund would come under diversified growth funds and how many other local authorities were looking at diversified growth funds.
In reply, Julian Pendock advised that diversified growth funds was not a new concept and that such funding would not be a short term measure, but a sensible activity to undertake in view of the current global economic volatility. It was intended that diversified growth funds would be in the first wave of investments to go into the CIV.
Mick Bowden advised that it would be open to the sub-committee to determine the amount of funds allocated for diversified growth funds at a later date. An assessment of what areas in diversified growth the Fund would benefit having exposure to was being undertaken and it would be for the diversified growth managers to decide on what to invest in.
Tom Wright added that he was aware of five other London boroughs who were developing a diversified growth funds strategy and there were also a few others in the UK that were undertaking this. These authorities were initially investing modest amounts in diversified growth funds, although it was anticipated the amounts would rise as confidence grew in their ability to achieve good returns.
RESOLVED:
(i) that the benefits to the Fund of increased investment in diversified growth funds be noted; and
(ii) that the commencement of the selection process for diversified growth managers be approved. |