Agenda and minutes
Venue: Committee Room 4, Brent Town Hall, Forty Lane, Wembley, HA9 9HD. View directions
Contact: Joe kwateng, Democratic Services Officer Email: joe.kwateng@brent.gov.uk, (020) 8937 1354
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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: None. |
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Minutes of the previous meeting held on 28 June 2011 PDF 101 KB Minutes: RESOLVED:-
that the minutes of the previous meeting held on 28 June 2011 be approved as an accurate record of the meeting.
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Matters arising Minutes: None.
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Deputations (if any) Minutes: None.
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Report from the performance measurement company, WM Lynn Coventry, a representative from WM will attend the meeting for this item.
I have circulated copies of the annual performance report for the Brent Fund to members only. Minutes: Lynne Coventry, a representative of WM, the performance measurement company, attended the meeting for this item. In presenting her report, she outlined the overall market environment and pointed out that Local Authorities had seen positive returns on equities in the year 2010/11 although the market remained volatile. Property remained the best performing asset class over a longer term of 20 years.
In drawing attention to performance relative to the benchmark she stated that the Fund achieved a positive return of 6.7% during the latest year. This compared with the benchmark return of 6.9% and the Local Authority average of 8.2%. Brent's ranking was now 84th percentile. Over the medium and longer term, the Fund was well below the benchmark and the Local Authority average. Over the 20 year period, the Fund achieved a return of 6.9% p.a. which compared with the UK RPI index of 2.9% p.a., a real rate of return of 3.9% p.a. She highlighted the attribution of the respective asset classes to the total fund performance both in the medium and longer terms together with each manager's performance.
RESOLVED:-
that the report by WM measurement company be noted.
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Report from Fauchier Partners Alex Dolbey and Christopher Fawcett representatives from Fauchier partners will attend the meeting for this item. Minutes: Alex Dolbey and Christopher Fawcett, representatives from Fauchier Partners, hedged fund portfolio managers attended the meeting for this item. Alex Dolbey informed the Sub-Committee that the results for the year ending 31 August 2011 had been disappointing with negative returns of 3% and in recognition of that a set of portfolio actions had been put in place to address the situation. He outlined the following main actions that had been taken to address the situation;
· Removed overly conservative managers who took insufficient risk. · Appointed additional specialist credit managers to increase exposure. · Increased exposure to process driven managers (investing in event driven, volatility trading, fixed income or multiple strategies) · Positioned the portfolio to benefit if macro issues should re-assert themselves.
The results of the changes were initially encouraging with the Fund returning 3.9% in the second half of 2010. However, the first half of 2011 had again been very disappointing for global markets and some managers.
Christopher Fawcett provided further clarifications including market outlook. He informed members amongst others that, credit had rallied and showed signs of reversing. Members were told that the opportunity for value creation would be enhanced in the light of increases in distressed debt, bank disposals and debt re-structuring. He was confident that corporate activity would present attractive opportunities taking into account market volatility and high corporate cash balances and as equity firms' investment periods come to an end.
In welcoming the report and the measures being taken by Fauchier to address the performance, Valentine Furness, the Independent Adviser added that it would appear that performance was getting better.
RESOLVED:-
that the report by Fauchier Partners be noted.
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2010/11 Pension Fund Accounts PDF 59 KB This report introduces the final Pension Fund accounts for 2010/11.
Auditors from the Audit Commission will attend the meeting for this item. Additional documents: Minutes: The Sub-Committee received a report which introduced the final Pension Fund accounts for 2010/11. Gary McLeod a representative of the District Auditor attended the meeting for this item.
In providing a summary of the findings he stated that subject to the completion of the final review and audit closure, the audit of the accounts was substantially complete. Gary McLeod informed the Sub-Committee that the District Auditor (DA) proposed to give an unqualified audit opinion on the financial statements but would not issue her opinion until the audit of the Council’s main financial statements had been completed. He continued that the draft financial statements were submitted by the due date, were substantially complete and supported by good working papers in line with expectations.
He continued that despite the teething problems from the introduction of the Oracle system, the migration of balances to the new system was well controlled. Members noted that the financial statements submitted for audit were free from material error, missing and incomplete disclosures had been adjusted by officers and that overall no significant weaknesses had been identified in the pension fund internal controls. The DA had stated that there were no material differences to the pension fund financial statements on the transition to IFRS and that she was satisfied that the pension fund financial statements had been properly compiled according to IFRS.
RESOLVED:-
that the report on 2010/11 Pension Accounts be noted.
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Monitoring report on fund activity for the quarter ended 30 June 2011 PDF 248 KB This report provides a summary of fund activity during the quarter ended 30th June 2011. It examines the actions taken, the economic and market background, and investment performance, as well as commenting on events in the quarter. The main points arising
I have circulated reports from Henderson Global investors, Legal & General Investment managers and Fauchier Partners to members of the Sub-Committee. Minutes: The Sub-Committee considered a report that provided a summary of fund activity during the quarter ended 30th June 2011 and examined the actions taken, the economic and market background, and investment performance in the quarter.
In summarising the main points Martin Spriggs, Head of Exchequer and Investment informed Members that the Fund had risen in value from £486m to £494m and had outperformed its benchmark over the quarter (+0.8%) as a result of stock selection (outperformance in bonds, UK equities, GTAA and private equity) offset by underperformance in hedge funds. The Fund also outperformed marginally, the return from the average local authority fund, with good returns from UK equities offset by the results of low exposure to index linked gilts. Over one year, the Fund had outperformed its benchmark (+3.3%) but had underperformed the average fund (-1.1%) as a result of lower exposure to equities / higher exposure to alternative assets and poor performance in global equities, and hedge funds, offset by good performance in GTAA and UK equities.
He outlined the main investment changes to the Brent Fund that had occurred as a result of market movements, sales of UK equities to fund investment (£3m), increased exposure to private equity (£3.6m), property (£0.3m, being reinvestment of dividends), and infrastructure (£1.8m). He added however that there had been a large number of retirements / early retirements during the quarter, resulting in lump sum payments from the Fund. Since the end of the quarter there has also been further investment in UK property (£0.3m), infrastructure (£0.2m) and private equity (£1.4m), but also more retirements.
He then referred to the problems experienced by Fauchier, hedge fund manager and the measures taken to address them and advised that the manager should be given time to improve (to the end of 2011 at least), but subject close monitoring of their performance. However, the strategic question of how much should be allocated to hedge funds would be reconsidered as part of the asset allocation review.
Valentine Furniss, Independent Adviser explained that the marked deterioration in investor confidence triggered by the problems in the US and the Eurozone couple with fear of below forecast world trade and inflation had affected the concluding opinion on equity markets in the investment report for the quarter ended 30th June 2011. In reference to the addendum attached to his report, Valentine Furniss informed members that the principal causes of the recent falls in the global markets were a lack of essential decisions to rectify fiscal deficits, weakening economic growth coupled with increasing inflation. He advised a more cautious investment stance as equity markets were likely to remain flat for 2011 as a whole.
RESOLVED:-
that the monitoring report on fund activity for the quarter ended 30 June 2011 be noted.
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Asset Allocation Review 2011 PDF 116 KB Minutes: Members received a report that reviewed the asset allocation for the Fund examined consultancy advice and issues for consideration and set out a process for considering the revision of the asset allocation.
Clive Heaphy, Director of Finance and Corporate Services in his introduction emphasised the importance of the review of the asset allocation in the light of poor investment performance relative to other local authorities and the recent Actuarial Valuation. He added that the 2010 valuation of the fund indicated that liabilities were only 61% funded, which was the second worst local authority outcome out of 89 funds nationally. As a result, employer contributions had been increased from, in the case of Brent Council, 22.9% in 2010 to 27.4% by 2013, with further increases predicted. In addition, staff numbers in Brent had been reduced by almost a quarter to around 2,800 as a result of severe reductions in government funding resulting in that far less employee contributions into the fund in future. It was anticipated across local government that changes in pension contributions and benefits resulting from the Hutton review and other initiatives could lead to an increase in ‘opt-outs’ further depressing the number of future paying members. A further consideration was that the Head of Exchequer and Investment will retire in 2012, so it would be important to consider such issues as the optimal number of managers as well as the investment strategy. The Director advised that careful management would therefore be required to bring the fund back to a more stable position, underpinned by a long term investment strategy that would be sustainable, manageable and realistic.
Martin Spriggs, Head of Exchequer and Investment outlined the various changes made to the asset allocation, the main reasons for under-performance of the fund against the average local authority fund and the key issues for members to consider. He continued that in order to support theasset allocation review process, the consultancy firm Mercer Ltd had been appointed to provide advice on asset allocation and to lead a training session with members to examine the main issues surrounding asset classes, risk, the fund deficit and the maturity of the Fund. Following the training session, officers would submit a further report recommending options for any changes to the asset allocation. He therefore urged all members to attend the meeting arranged for Monday 31 October 2011 at 2:00pm.
RESOLVED:-
that the report from the Head of Exchequer and Investment on asset allocation be noted.
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Investment in the clean energy and infrastructure fund PDF 71 KB The report proposes a £10 million investment in the Clean Energy and Infrastructure Fund managed by Capital Dynamics.
Minutes: Members gave consideration to a report that proposed a £10 million investment in the Clean Energy and Infrastructure Fund managed by Capital Dynamics.
Martin Spriggs set out the main aspects of the Clean Energy and Infrastructure Fund and advised members that clean energy was a very specialist area, for which Capital Dynamics appear to have relevant skills and experience. He continued that investing in the Clean Energy and Infrastructure Fund would accelerate exposure both in infrastructure and the ‘green’ energy theme and would increase the benchmark allocation to infrastructure to 6% of the Brent Fund (from 5%). He also advised members that some other local authorities had followed a similar approach to investing with Capital Dynamics.
RESOLVED:-
that £10millions be agreed for investment in the Clean Energy and Infrastructure Fund managed by Capital Dynamics.
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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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Date of next meeting The next ordinary meeting will take place on Tuesday 29 November 2011 at 6:30pm. Minutes: The next meeting will take place on Tuesday 29 November 2011.
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