Issue - meetings

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

Roger Melling left the meeting at 20:30hrs.

Emily McGuire of Hewitt presented the report on the fund’s asset allocation position. The aim of the quarterly review was to identify areas where small changes could be made to the fund’s asset allocation position in order to maximise the value of the fund between three-yearly strategic investment reviews.

The report anticipated that there would be a decline in the value of fixed income assets, and advised a reduction in gilts and corporate bonds, to be held in cash in the short term, until the time of the strategic investment review. The report also recommended an increase in property, although it was recognised that the property manager would need to identify suitable opportunities for investment in order to implement this.

In response to questions from the Committee regarding inflation and interest rates, it was reported that Hewitt expected that interest rates would rise in the second half of the year and that there were concerns regarding inflation.

Ms McGuire advised that the adjustment proposed was intended to protect the fund’s capital from any further shock to the financial market. In relation to the strategic investment review, it was reported that Hewitt would look for capital protection and real returns as outcomes. The strategic investment review would also provide an opportunity to review the structure of the fund’s investments, and it was suggested that there would be benefit in providing fund managers with increased flexibility.

In response to a question from the independent investment advisor, Howard Jones, Ms McGuire confirmed that Hewitt would recommend the reduction in gilts and corporate bonds whether or not any opportunities for investment in property arose. It was proposed that the amount reduced be held in cash in anticipation of opportunities for investment in property, although it was acknowledged that the fund’s property manager may not be in a position to call down funds for investment as quickly as hoped.

The Committee asked on what basis Hewitt were recommending that property offered good value, in response to which it was reported that capital values in commercial properties had decreased to a low level and that, where investments could be identified with secured tenancy, these could offer good value opportunities for investment. It was reported that property was an asset class that was performing well and that, if the fund were to remain significantly underweight in this asset class, overall fund performance would be affected negatively.

RESOLVED

i)                    That gilts be reduced by 2.0%, index-linked gilts by 0.3% and corporate bonds by 2.4%, to be held in cash for the short term.

ii)                  That the underweight position in property be closed once opportunities are identified by the property manager for investment, up to the benchmark weighting.