Agenda and minutes

Please note this meeting may be filmed or recorded by the Council for live or subsequent broadcast via the Council’s internet site or by anyone attending the meeting using any communication method. Although we ask members of the public recording, filming or reporting on the meeting not to include the public seating areas, members of the public attending the meeting should be aware that we cannot guarantee that they will not be filmed or recorded by others attending the meeting. Members of the public participating in the meeting (e.g. making deputations, asking questions, making oral protests) should be aware that they are likely to be filmed, recorded or reported on.  By entering the meeting room and using the public seating area, you are consenting to being filmed and to the possible use of those images and sound recordings.

The chair of the meeting has the discretion to terminate or suspend filming or recording, if in his or her opinion continuation of the filming, recording or reporting would disrupt or prejudice the proceedings, infringe the rights of any individual or may lead to the breach of a legal obligation by the Council.

The Chair referred Members present to agenda Item 1 as shown on the agenda in respect of filming at this meeting, and Members noted the information contained therein.

Apologies for absence were received from Cllr Ross, for whom Cllr Carter was substituting.

The Chair will consider the admission of any late items of Urgent Business.  (Late items of Urgent Business will be considered under the agenda item where they appear. New items of unrestricted Urgent Business will be dealt with under item 20 below, new items of exempt urgent business will be dealt with under agenda item 25 below).

A late amendment to the recommendation in the report for agenda item 8, Pensions Administration Report, had been circulated prior to the meeting.

A member with a disclosable pecuniary interest or a prejudicial interest in a matter who attends a meeting of the authority at which the matter is considered:

(i) must disclose the interest at the start of the meeting or when the interest becomes apparent, and

(ii) may not participate in any discussion or vote on the matter and must withdraw from the meeting room.

A member who discloses at a meeting a disclosable pecuniary interest which is not registered in the Register of Members’ Interests or the subject of a pending notification must notify the Monitoring Officer of the interest within 28 days of the disclosure.

Disclosable pecuniary interests, personal interests and prejudicial interests are defined at Paragraphs 5-7 and Appendix A of the Members’ Code of Conduct

The Public Service Pensions Act 2013 defines a conflict of interest as a financial or other interest which is likely to prejudice a person’s exercise of functions. Therefore, a conflict of interest may arise when an individual:

i)             Has a responsibility or duty in relation to the management of, or provision of advice to, the LBHPF, and

ii)            At the same time, has:

-       a separate personal interest (financial or otherwise) or

-       another responsibility in relation to that matter,

giving rise to a possible conflict with their first responsibility. An interest could also arise due to a family member or close colleague having a specific responsibility or interest in a matter.

At the commencement of the meeting, the Chair will ask all Members of the Committee and Board to declare any new potential conflicts and these will be recorded in the minutes of the meeting and the Fund’s Register of Conflicts of Interest. Any individual who considers that they or another individual has a potential or actual conflict of interest which relates to an item of business at a meeting must advise the Chair prior to the meeting, where possible, or state this clearly at the meeting at the earliest possible opportunity.

There were no declarations of interest or conflicts of interest.

Note from the Assistant Director of Corporate Governance and Monitoring Officer

When considering the items below, the Committee will be operating in its capacity as ‘Administering Authority’. When the Committee is operating in its capacity as an Administering Authority, Members must have due regard to their duty as quasi-trustees to act in the best interest of the Pension Fund above all other considerations.

Cllr Bevan, Cllr Blake, Cllr Carter, Cllr Tucker, Keith Brown and Randy Plowright had attended a training session on Infrastructure Debt in advance of the meeting.

Further notification of training received prior to the meeting had been submitted as follows:

Cllr Bevan:    P&LSA Pension issues breakfast briefing 16/02/17

London CIV conference 01/03/17

To confirm the minutes of the meeting of the Pensions Committee and Board held on 9^th February 2017 as a correct record.

Minute 46: Minutes – agreed that the draft email to PIRC would be circulated for information.                                                  

Action: Head of Pensions

Minute 51: Quarterly LAPFF Engagement Report – agreed to strengthen the wording relating to looking at possible ways of divesting from unethical investments and actively seeking to invest in projects with a positive social impact.

RESOLVED

That, with the amendment to Minute 51 as set out above, the minutes of the meeting held on 9 February 2017 be approved as a correct record.

Report of the Chief Operating Officer to consider the draft Investment Strategy Statement prepared for the fund.  The Investment Strategy Statement is a new statutory document for LGPS funds, as required by Regulation 7 of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.

The Chair agreed to vary the order of the agenda to take the report on the draft Investment Strategy Statement next.

The Committee considered the report on the draft Investment Strategy Statement, as introduced by John Raisin, Independent Advisor to the Fund. Mr Raisin gave details of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 (the LGPS Investment Regulations 2016) and the implications of these for the Fund. The Committee noted that the new regulations now promoted an Environmental, Social and Governance (ESG) approach, and as an example, Mr Raisin advised of a local authority who had chosen to invest 1% of their fund in a social impact fund.

The Committee asked about the social impact fund investment referred to by Mr Raisin, and whether this investment was only in projects local to that authority. Mr Raisin advised that the projects were not local to the authority, as there would be difficulty in identifying local projects on which you could be sufficiently confident in the returns to justify investment on financial grounds. It was noted that there was nothing to restrict a local authority from making social impact investments on a local level if these were demonstrably prudent on financial grounds, but it would be a challenge to identify suitable investments and would require very high levels of due diligence and consideration in order to ensure that such investment was prudent. The Committee expressed an interest in speaking to other authorities where social impact investments had been made for projects such as social housing, in order to learn more about these possibilities.

Steve Turner, Mercer, advised the Committee that, in line with the new regulations, the Fund’s Investment Strategy Statement was now required to include details of risks to the Fund, and was also required to have a statement on the approach to asset pooling.

The Chair advised that a representation had been received from Friends of the Earth in respect of the wording of the draft Investment Strategy Statement and allowed Quentin Given, Friends of the Earth, to briefly address the Committee regarding the proposed amendment. Mr Given noted that Friends of the Earth welcomed the statement in the Social, Environmental and Corporate Governance Policy (section 5 of the draft strategy) that ‘The Fund believes that further reduction in exposure to fossil fuel industries will reduce risk and secure stronger returns for the fund over the long term’ and proposed the following additional text:

“We will seek to ensure all funds are in low-carbon investments – or positively invested in renewable energy or other green industries – as soon as reasonably possible.

As well as benefitting the Fund, this will encourage other councils and institutions to adopt similar approaches, and so increase momentum to reduce the devastation unrestrained climate change would cause and strengthen the move towards a sustainably prosperous world economy.”

In response to the amendment proposed by Friends of the Earth, Thomas Skeen, Head of Pensions, Mr Turner and Mr Raisin expressed concern  ...  view the full minutes text for item 68.

Report of the Chief Operating Officer to present the audit plan prepared by the external auditors, BDO, for the audit of the Pension Fund accounts 2016/17 for the Committee’s consideration.

The Committee and Board considered the report on the Pension Fund Audit Plan, introduced by Thomas Skeen, Head of Pensions. The report from BDO was presented by Kerry Barnes, who set out the key points including materiality, key audit risks - in particular disclosures required for the first time this year due to changes in the guidance, independence of the audit and the audit fee, which the Committee noted was the same as the previous year.

The Committee asked about the requirement to disclose only a percentage of the remuneration of key management personnel, in response to which Ms Barnes advised that this was to reflect the cost charged to the pension fund.

In response to a question from the Committee regarding ‘hidden’ fees in relation to investment management expenses, Ms Barnes advised that this was an issue that CIPFA and the Pensions Regulator had been looking into; although it was not mandated that such fees be disclosed separately for this year’s audit, it was likely that this would be mandated in the following year, and funds were therefore being asked to obtain fee information from Fund Managers for disclosure where possible this year.

RESOLVED

That the report be noted.

Report of the Chief Operating Officer to present details of a new admission to the pension fund, and the results of the Pensions Regulator self assessment tool for schemes.

The Committee and Board considered the amended version of the Pensions Administration Report, as circulated in advance of the meeting and admitted as an item of urgent business under agenda item 3. Janet Richards, Pensions Manager, introduced the report, which covered an update on the Pensions Regulator self-assessment tool and the admission of Ategi Ltd as a new employer to the Pension Fund.

Referring to the self-assessment toolkit, the Committee asked whether receiving poor quality or incomplete data was an issue for the Fund and what was being done to address this, if so. Ms Richards advised that there were some issues obtaining data from external fund employers; as set out in the Pensions Administration Strategy Statement, it was noted that the Council had the ability to fine employers, and this was an option that was being considered for when such issues arose in future. The Committee asked for confirmation of whether the option to fine employers related to the submission of data, or whether this was only for late payment of pension contributions and it was agreed that this would be confirmed to Members outside the meeting.

Action: Head of Pensions

RESOLVED

i)             That the Committee and Board note the results of The Pensions Regulator Self Assessment Tool for LGPS schemes attached in Appendix 1.

ii)            That the Committee and Board approve the admission of Ategi Ltd as a new employer to the Pension Fund, subject to their securing a bond or a guarantee from a third party in line with the LGPS regulations, to indemnify the pension fund against any future potential liabilities that could arise. 

Report of the Chief Operating Officer to provide an update to Committee on progress toward compliance with Scheme Advisory Board key performance indicators, to highlight areas where improvement is still needed in order to achieve full compliance and to provide an update on progress toward implementing the recommendations from the Governance Review that was undertaken by the Independent Advisor to the Fund.

The Committee and Board considered the quarterly governance report, as introduced by Thomas Skeen, Head of Pensions. The Committee noted that the Fund’s score against the Scheme Advisory Board’s key performance indicators had increased by 1 since the previous meeting (relating to fund manager performance) and now stood at a 69% achievement rate.

RESOLVED

That the Committee and Board note progress since the last report to the Committee and Board on performance against the Scheme Advisory Board’s key indicators and recommendations from the governance review.

Report of the Chief Operating Officer to to identify topics that will come to the attention of the Committee in the next twelve months and to seek Members input into future agendas.  Suggestions on future training are also requested.

The Committee and Board considered the quarterly report on the forward plan, as introduced by Thomas Skeen, Head of Pensions.

The Committee noted that reports on the CQS mandate and the review of Low-Carbon investment options would be added to the forward plan for the agenda for the July meeting of the Committee and Board, and that there would also be either a training session or report at the July meeting on social impact investment – it was agreed that officers and advisors would discuss the best way of taking this forward outside of the meeting.

It was noted that Keith Brown had completed the Pension Regulator’s online toolkit and the training record would be updated accordingly.

RESOLVED

That the Committee and Board agree the additions to the forward plan above, and note the work plan and update on member training.

Report of the Chief Operating Officer to provide an update on the Fund’s risk register and an opportunity for the Committee to further review the risk score allocation.

The Committee and Board considered the report on the Fund’s risk register, introduced by Thomas Skeen, Head of Pensions. It was noted that there had been no change in the risks since the last meeting, and that the focus of this report was on Accounting and Investments.

The Committee asked about the red rated risk relating to turnover of Committee Members and asked whether there was any merit in proposing that the term of office for Pensions Committee and Board members be longer than a year. It was noted that there may be a risk that people would be deterred from standing for the Committee and Board if this were the case, however it was also felt that people committing to sit on the Committee and Board for a longer period would make it a more effective body. The Committee and Board noted its unique arrangement in having obtained an exemption from Government to operate as a joint body, and the expectation that it would operate to a higher standard as a result. It was agreed that Members would discuss this possibility further outside the meeting.

RESOLVED

i)             That the Committee and Board note the risk register.

ii)            That the Committee and Board note that the area of focus for review at the meeting was ‘Accounting’ and ‘Investments’ risks.

Report of the Chief Operating Officer to report the following in respect of the three months to 31^st December 2016:

·         Investment asset allocation

·         Investment performance

·         Investment Update

The Committee and Board noted the quarterly Pension Fund update report, as introduced by Thomas Skeen, Head of Pensions. It was noted that the value of the Fund had increased by £49m in the quarter from October to December 2016. In respect of the portfolio allocation, it was noted that the Fund was currently overweight in equities compared with the strategy, however it was expected that the level of equities would decrease as managers drew down to make investments in other asset classes as agreed.

The Committee and Board welcomed the greater context that was provided in this report and noted that, whilst regulations no longer required a quarterly report to be produced, it was best practice to do so.

RESOLVED

That the information provided in respect of the three months to 31^st December 2016 be noted.

Report of the Chief Operating Officer to provide an update on voting activities on behalf of the Fund.

The Committee and Board considered the quarterly LAPFF engagement report, as introduced by Thomas Skeen, Head of Pensions. It was noted that in the last quarter LGIM had voted in line with the LAPFF voting recommendation relating to Euromoney, although the outcome of the vote had ultimately gone against this recommendation.

The Committee and Board welcomed the update, and the reassurance that LAPFF guidance was being followed in relation to votes undertaken on behalf of the Fund.

RESOLVED

That the Committee and Board note the report.

Report of the Chief Operating Officer to introduce the proposed Conflict of Interest Policy.

The Committee and Board considered the report on the Conflicts of Interest Policy, as introduced by Thomas Skeen, Head of Pensions. It was noted that it was a requirement of the Committee and Board’s terms of reference that the Conflicts of Interest policy be reviewed on an annual basis, and that there had been no significant change to the policy since last year. Members were asked to complete their annual conflicts of interest declaration and return these to officers in accordance with the requirements of the policy.

RESOLVED

That the Committee and Board adopt the Conflicts of Interest Policy as set out at Appendix 1 to the report.

Report of the Chief Operating Officer for the Committee and Board to note the final actuarial valuation report as at 31^st March 2016, including the methodology and assumption used by the actuary, and to note and agree the Funding Strategy Statement, which has been updated, in line with the 2016 triennial valuation.

The Committee considered the report on the final results of the 2016 Triennial Valuation and the draft Funding Strategy Statement, as introduced by Thomas Skeen, Head of Pensions. It was noted that the final results were in line with the draft results which had been reported to the Committee in November 2016, and that the funding position as reported in the final report had increased to 79%.

In response to a question from the Committee and Board, it was agreed that officers would ask Hymans Robertson to provide information on the level of discount rate that would result in the Fund being assessed as fully funded if applied.

Action: Head of Pensions

It was confirmed that the Council’s contribution rate was set to remain the same for the next two years, and would then increase by 1.5% in year 3, 2019/20.

The Committee and Board noted that the outcome of the report was very positive.

RESOLVED

i)             That the Committee and Board note the final results of the triennial valuation of the Fund.

ii)            That the Committee and Board agree the Funding Strategy Statement.

Report of the Chief Operating Officer to request approval to award a contract for the Pensions Administration System for a period of 5 years commencing 21 April 2017. 

The Committee and Board considered the report on the Pensions Administration System contract, as introduced by Thomas Skeen, Head of Pensions. The Committee and Board noted that the cost of the proposed contract was less than the current contract.

In response to a question from the Committee and Board, it was reported that AquilaHeywood Ltd were not the only provider of such systems, but did account for the majority of the market, with around 80% of LGPS funds using the proposed system. Benchmarking with neighbouring local authorities had indicated that Haringey was achieving value for money in respect of the costs associated with its Pensions Administration Service.

RESOLVED

i)             That the Pensions Committee and Board approve for the Council to enter into a five year contract with AquilaHeywood for Pensions Administration Systems, commencing 21 April 2017 to 20 April 2022 in accordance with Contract Standing Order (CSO) 3.01b.

ii)            That the contract be procured by a call off from a Framework Agreement set up by Northumberland County Council for pensions administration systems as permitted by CSO 7.01b.

iii)           That the cost of the proposed contract be £132k per annum (subject to indexation) and the total for 5 years be £659k (subject to indexation). 

Report of the Chief Operating Officer to bring back a finalised implementation plan for the Committee’s approval, further to the agreement at the February 9^th Pensions Committee and Board meeting that the committee will implement currency hedging on 50% of the Fund’s developed market overseas exposure.

The Committee and Board considered the report on Currency Hedging Implementation, and the content of the exempt report provided by Mercer. Following on from the discussion at the previous meeting of the Committee and Board, the report set out the proposed passive equity portfolio after implementation of the 50% currency hedge and details of rebalancing to be put in place with LGIM, details of the proposed implementation timetable and options for adopting a ‘trigger’ to accelerate the currency hedging implementation if breached. The Committee noted that LGIM had agreed to establish a currency hedged shareclass for the MSCI World Low Carbon Target Index fund specifically for the use of the Fund in order to enable the implementation of this strategy.

The Committee and Board expressed some concern regarding the ability of officers to monitor the ‘trigger rate’ as proposed, and the risk of a breach being overlooked. Officers suggested that this was the most practical arrangement for monitoring of the ‘trigger rate’ – checking rates could be undertaken as a quick task on a daily basis, and any change in rates approaching or breaching the ‘trigger rate’ was likely to be widely reported in the news and would therefore be unlikely to be overlooked.

RESOLVED

i)             That the Committee and Board note and agree to the content of Appendix 1 to the report, a currency hedging implementation plan from Mercer, the Fund’s Investment Consultant. The plan being to hedge 50% of the Fund’s exposure to developed market overseas equity in three tranches over a 2 month period. This utilises the existing relationship with Legal and General Investment Management, to ensure costs are kept to a minimum.

ii)            That the Committee and Board give delegated authority approval to the Chief Operating Officer to speed up the currency hedging implementation, should Sterling fall to the ‘trigger rate’ of 1.20 compared to the US dollar (a historic low not breached since 1985).

Review of the Chief Operating Officer to bring back a report from Mercer highlighting possible changes to the fund’s investment strategy, further to the decision at the 9^th February meeting of the Pensions Committee and Board to commission a review of the pension fund’s investment strategy.

The Committee and Board considered the report on the Investment Strategy Review, and the content of the exempt report as introduced by Mercer. The report set out a number of different options for the fund’s investment strategy, and also suggested that the issue of liability risk be revisited by the Committee and Board following the completion of the actuarial advisor review process.

The Committee and Board discussed options around Multi-Asset Absolute Return (MAAR), and noted performance relating to two MAAR managers currently available with the London Collective Investment Vehicle (CIV), as well as performance for this asset class more widely. It was noted that these managers were active fund managers, as opposed to passive, and would be expected to achieve overall performance of around cash plus 4% - the difference in fee payable to such managers and the fee for passively-managed equities was noted, but also compared with the respective expected performance outcomes. The Committee and Board expressed an interest in this area, and it was suggested that a meeting be set up for members of the Committee and Board to meet with the managers available with the CIV on an informal basis.

The Committee and Board considered the infrastructure debt allocation; it was noted that this was likely to remain underweight compared to target, and the Committee and Board considered options for addressing this position. Of the options proposed, the Committee and Board expressed a preference to top up the CQS Multi-Asset Credit portfolio, a benefit of which was that the instruction could be implemented immediately.

The Committee and Board looked at ESG considerations. It was noted that compared with other funds, the Fund was very advanced in its consideration of such matters, and further options for developing this approach included investing in an active global sustainability equity strategy, considering an ESG index as the benchmark for the core passive equity exposure and investing in strategies designed to have a positive social impact as well as strong financial returns. It was noted that a separate report on positive social impact investment opportunities would be brought back to the next meeting of the Committee and Board for consideration. The Committee expressed an interest in considering an ESG index for the passive equity exposure, and requested performance information and further details in relation to this option.

RESOLVED

i)             That the Committee and Board consider the proposals outlined by Mercer in appendix 1 to the report.

ii)            That the Committee and Board agree to implement the proposal to reduce the benchmark allocation to Allianz to 3% and increase the strategic allocation to the CQS Multi-Asset Credit Strategy to 7%, with rebalancing from the current overweight equity portfolio.

iii)           That further information be brought to the next meeting of the Committee and Board with regard to ESG indices for the passive equity portfolio, and on opportunities for social impact investing.

iv)           That members of the Committee and Board be provided with an opportunity to meet with the MAAR fund managers available with the  ...  view the full minutes text for item 80.

To consider any new items of unrestricted urgent business admitted under agenda item 2.

There were no new items of unrestricted urgent business.

The following items are likely to be the subject of a motion to exclude the press and public from the meeting as it contains exempt information, as defined under Paragraph 3, Part 1, Schedule 12A of the Local Government Act 1972.

To consider exempt information pertaining to agenda item 17.

The Committee and Board noted the exempt information in relation to this report.

To consider exempt information pertaining to agenda item 18.

The Committee and Board noted the exempt information in relation to this report.

To consider exempt information pertaining to agenda item 19.

The Committee and Board considered exempt information in relation to this report.

To consider any new items of exempt urgent business admitted under agenda item 2 above.

There were no new items of exempt urgent business.

The meeting closed at 9.20pm.