Agenda item
Monitoring report on fund activity for the quarter ended 31 December 2014
This report provides a summary of the Fund’s activity during the quarter ended 31 December 2014 and examines the economic and market background, and investment performance, as well as commenting on events in the quarter.
Minutes:
Members considered a report which provided a summary of the Fund’s activity during the quarter ended 31 December 2014 and examined the economic and market background, and investment performance. In highlighting the main points, Mick Bowden (Operational Director of Finance) informed members that the value of the Fund had increased by 2.4% from £609m to £623.8m. The Fund’s investment return of 2.1% underperformed against the benchmark return of 2.3%. The main factor was the Total Return Bond Fund, which lost money against the backdrop of a record-setting bull market in bonds.
Members noted the comparative statistics in the report that showed that the Fund had been one of the lower performing LGPS funds for a period of many years, largely due to its lower weighting in equities (49% of the fund, compared to the Local Authority average of 63%). Members also noted that with the exception of the Alinda (Infrastructure Manager of the Fund) and Baillie Gifford (Pooled Multi Asset), returns on all other actively managed investment categories underperformed the benchmark over the year. They expressed concerns about the poor performance in 2014 of Henderson Total Return Bond Fund, in particular.
Mick Bowden provided an update on the establishment of Pensions Board, a requirement by statutory regulations as a result of the Hutton Review (The Independent Public Service Pensions Commission). The Pensions Board was to be established by 1 April 2015 and be operational by 20 July 2015. He continued that the Board’s mandated role would be to scrutinise the work of the Sub-Committee, with regards to compliance regulations, legislation (existing and new) and to oversee the governance and administration of the Pension Fund. Its role would be advisory only, and would not alter the role of the Council’s Pension Fund Sub-Committee. He continued that the Pensions Board would have an equal number of employer and scheme member representatives and an independent chair. Funded by the Pension Fund, the Board would meet at least twice a year. Mick Bowden informed members that a meeting of the General Purposes Committee on 25 February 2015 would determine the arrangements for the establishment of the Pensions Board.
Mick Bowden also provided an update on the establishment of the Collective Investment Vehicle (CIV). An Asset Service Provider has now been appointed and work is progressing on the preparing the application to the Financial Conduct Authority.
Peter Davies (Independent Adviser to the Fund) gave an overview of the market situation including updates since his report to the Sub-Committee was written. He informed members that the most dramatic – and unexpected – development had been the steep fall in the price of oil which arose from the low-cost producers within the OPEC group, (Saudi Arabia, Kuwait, Qatar and UAE) to maintain their production levels, aware that this would force the price of oil downwards. It was noted that the fall in oil price would severely affect the viability and profitability of shale oil gas producers. He also highlighted the political and economic situation in Greece adding that the reprieve regarding their bail out arrangement would provide a 4 month temporary cushion until June 2015 when the Greek government’s intentions on the bail out arrangements would be made clearer. The prospects for future growth in the Chinese economy were considered with concern expressed by the Independent Adviser around the reliability of the official figures and the extent to which the debt burden was sustainable.
RESOLVED:-
That the monitoring report for the quarter ending 31 December 2014 be noted.
Supporting documents: