Issue - meetings

Report of the Chief Financial Officer to review the Fund’s asset allocation position.

David Crum of Hewitt presented the quarterly asset allocation update. The Committee was reminded that the purpose of the report was for Hewitt to make recommendations on how to amend the asset allocation of the Fund in order to maximise performance, based on Hewitt’s analysis of how the market was likely to change. This would enable the Committee to manage the asset allocation of the Fund on a more regular basis than the review of the investment strategy every three years. Further to the previous recommendation that a small percentage be moved from UK gilts to corporate bonds, it was reported that the Fund had benefited from this change by around £500k.

Mr Crum reported that further to the production of the report, volatility in the market meant that Hewitt were no longer recommending any change in gilt holdings, but were still recommending a reduction in corporate bonds by around 2%. It was suggested that this be held in cash, for subsequent investment in property by the property manager.

In response to a question from the Committee, Mr Crum reported that equities were considered on the basis of performance and company fundamentals rather than geographical location. The Committee asked the meaning of the phrase “overtaken reality” in relation to performance. Mr Crum advised that this referred to the belief in certain sectors that things were back to ‘business as usual’, and Hewitt’s belief that this was over optimistic and not sustainable.

The Committee asked why Hewitt were not recommending an increase in gilts, in response to which Mr Crum advised that this was as a result of the high price of gilts at the current time. In response to a question from the Committee regarding the impact of recent concerns relating to Dubai, Mr Crum reported that the extent of any impact would depend on the level of exposure of UK banks to Dubai holdings.

The Committee expressed concern regarding increasing the amount of the Fund held in cash, which was not earning significant interest at this time. Howard Jones, the Committee’s Independent Advisor, reported that, at a recent meeting of the Committee, the Fund’s property manager ING had been cautious regarding the outlook for investment in property, and asked whether Hewitt disagreed. Mr Crum responded that Hewitt did not fundamentally differ from this view. The Committee asked whether Hewitt would be making the same recommendations if it were known that ING were not going to draw on the money to invest, in response to which Mr Crum advised that Hewitt would still be likely to recommend a reduction in corporate bonds, which were overweight in the current allocation.

The Chief Financial Officer suggested that ING be asked for their view on the likelihood of investment opportunities arising for which they would require funds. If they were confident that funds would be required, it was suggested that the recommendation to transfer 2% from corporate bonds to cash be acted on, otherwise the position would remain as at present. In respect  ...  view the full minutes text for item 136