Agenda item
WM Company - Annual Performance Review
A representative of WM Company, Lynn Coventry, will give a presentation on annual performance review for the period ending March 2013.
Bound copies of the accompanying report by MW Company have been produced separately and sent to members only.
Minutes:
A representative of WM Company, Lynn Coventry, gave a slide presentation on the investment performance review of Brent Pension Fund (the Fund) for 1, 3, 5 and 10 year periods ending March 2013. In drawing members’ attention to the risk and return slide Lynn Coventry stated that in general local authorities tended to have similar investment strategies with typical asset allocation however in Brent’s case, the investment strategy was concentrated in lower than average risk and lower than average return resulting in underperformance over the past ten years except for one year. This contrasted with higher performing Funds which had fewer managers with long term tenure, a lesser governance burden and lower administration costs.
Lynn Coventry clarified that the Fund was relatively small but complex in structure and that it had changed fund managers to a greater extent than the peer group. As a result, the Fund had been unable to achieve its strategic targeted benchmark return for a number of years although it was pointed out that the Fund had managed to outperform its benchmark in the most recent financial year ended 31 March 2013. She continued that the Fund needed to achieve an annual return of 6.5% in order to meet current and future payments, however, 29% of the assets were currently benchmarked against a return that was lower than 6.5% per annum. Members heard that Alternatives were usually held to diversify risk but at a lower level of return than equity and as the Fund had 29% of the benchmark in Alternatives whilst the average was only 9%, there was a need for a review of the level of risk for return. She attributed part of the underperformance to the negative impact of active management (Alliance Bernstein), short term investments in some Alternatives such as active currency, Global Tactical Asset Allocation (GTAA) and the cost of changes.
Lynn Coventry concluded that despite the above benchmark performance over the latest year, the Fund was below the benchmark over the longer term and was the worst performing fund of all local authority funds over all long term periods. Its complex and frequently changed structure had added to costs and over the past five years had failed to deliver the required rate of return. She noted that the Fund’s manager arrangements had been altered to increase the level of passive management which would assist in taking out some of the active risks in underperformance.
Peter Davies, the Independent Adviser asked about the likelihood of the annual return on bonds achieving 6.5% and Councillor Brown asked whether 6.5% was a realistic target in a low investment return environment. Lynn Coventry responded that whilst the return on bonds may be exceptional in a given year, it normalised over a ten year period. She added that 6.5% return was required for the Fund to meet its liabilities. Anthony Dodridge added that the current portfolio had been significantly reconfigured to ensure improved performance of the Fund and that the tri-annual actuarial review which would be reported to the Sub-Committee in November would confirm this viewpoint.
RESOLVED:
that the performance review of Brent Pension Fund for the investment period ended March 2013 be noted.