Agenda item
Local Government Pension Scheme funds performance
Members will receive a presentation from Lynn Coventry of WM on the Local Government Pension Scheme’s funds performance. The presentation is attached.
Minutes:
Lynn Coventry (WM) gave a presentation on the Local Government Pension Scheme (LGPS) funds performance. Members heard that the average return for a LGPS for 2013/14 was 6.4%. Annual returns in equity continued to perform well ahead of inflation, although they involved more volatility, whilst bonds’ performance was also strong overall, although returns had been reducing in the last three years. The sub-committee noted the returns in alternatives and property. In terms of overall annual returns, Lynn Coventry advised that over the last 20 years there had been an average return of 7.2% which was around 4% ahead of inflation. Although alternatives continued to lag well behind equities in returns over the past five years, the average proportion of investment in alternatives had risen in recent years, whilst the average proportion in equities was reducing.
Turing to Brent’s Fund, Lynn Coventry informed members that the Fund’s structure was rather different to most other local authorities, with an appreciably larger percentage of investment in alternatives and well below average weighing in equities. The Fund was also relatively complex and had been changed frequently. As the Fund had a lower percentage of equities, it was at lower risk than other local authorities, however the last five years had seen equities achieve higher returns and so the Fund’s performance had not compared well in the local authorities universe. The Fund’s performance in 2014 registered a return of 6.1%, below the benchmark of 7.2% and local authority average return and in the last ten years the Fund had only performed above the benchmark for two of these years. Lynn Coventry attributed this to the negative impact from active management and unfavourable performance from relative short term investments in some alternatives. The sub-committee noted the returns compared to the benchmark return for each of the fund managers. In terms of relative risk and return, Lynn Coventry advised that the Fund’s higher relative risk had not been rewarded in relative return to date. Over a longer period, the above average commitment to alternatives had impacted negatively on the Fund, whilst there had also been examples of unsuccessful management of stock selection, particularly in equities.
During discussion, a member asked if comparisons with other local authorities’ fund investments had been made. Another member commented that there had been some improvement in returns. The Chair thanked Lynn Coventry for the helpful presentation and in noting the relatively poor return of the Fund in recent years, enquired whether it was down to appointing the wrong fund managers at the wrong time. He advised that the sub-committee would consider the asset allocation under the strategic asset allocation item later on in the meeting with a view to considering what changes could be made in future to the spread of investments to achieve more favourable rates of returns.
In reply to the issues raised, Lynn Coventry reiterated that the Fund was structured quite differently to other LGPS funds and the current performance was also influenced by the strategy driving it. In respect of fund managers, some had taken an active management approach, however the success of this was dependent on their ability to judge how their actions would lead to better returns, rather than taking a more conventional passive approach.
Julian Pendock (Investments and Pensions Manager, Finance and IT) added that it would not be prudent to make large changes to the Fund’s structure at this stage due to the volatility of the market and the risks involved. However, by undertaking an analysis of the performance in various areas, some changes could be made to help bring about an improvement.
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