Each will give a 2 minute introduction and a 10 minute presentation, followed by 8 minutes of questions from Trustees and 5 minutes of questions from the Advisor and any other questions.
Minutes:
Each Fund Manager gave a presentation of approximately 10 minutes followed by questions from Members and the Advisor.
i. Fidelity
ii. Capital
iii. Bernstein
iv. Wellington
i. Fidelity
Peter Yarrow from Fidelity addressed the Panel.
Fund performance was 0.55% above benchmark and 0.18% above target in the quarter to September 2005. Annualised performance since inception was 0.26% above benchmark and 1.14% below target.
Mr. Yarrow said the fund was overweight in Japanese equities and underweight in bonds. This was a strategy the Fund was following as it was felt that Japanese equities had a large potential for growth.
The Chair asked the opinion of Mr. Yarrow about where the predominant weight of the Fund’s investment should be. Mr. Yarrow said that, as the LGPS’ liabilities were in pounds sterling, UK equities should be the largest component of the investment portfolio.
The Panel asked Mr. Yarrow how Fidelity was working to promote corporate social responsibility with the funds it was managing on behalf of the Haringey LGPS. Mr. Yarrow informed the Panel that Fidelity was exercising proxy votes and was using them to vote against remuneration packages for directors if they were not matched by performance. However, Mr. Yarrow said that they would not refuse to buy shares in a firm on purely ethical grounds.
ii. Capital
Anthony Burgess from Capital addressed trustees.
Fund performance was 1.00% below benchmark and 1.37% below target in the quarter to September 2005. Annualised performance since inception was 0.70% below benchmark and 2.20% below target.
Mr. Burgess stated that underperformance in the quarter was mainly due to UK equities. The Fund was underweight in oil stocks, but oil firms did particularly well in that quarter. The best performing component of the portfolio was Japanese equities.
Mr. Jones, the Advisor to Trustees, mentioned the departure of an analyst in the insurance sector. He asked if any further changes in their team were anticipated. Mr. Burgess replied to say there would be some changes in the media division.
The information provided by Capital to the Panel stated that the cost of turnover was 26 basis points (0.26%). Mr. Jones asked if this would be disaggregated into execution and research costs. Mr. Burgess stated this was not currently possible but, following pilot work in the US, it would be rolled out in the UK in future.
Mr. Burgess informed the Panel that he was optimistic that the firms the fund had invested in would show high rates of return in the medium-term despite their underperformance in the 3rd quarter of 2005.
iii. Bernstein
A presentation was made by Patrick Rudden on behalf of Bernstein.
Fund performance was 0.03% above benchmark and 0.47% below target in the quarter to September 2005. Annualised performance since inception was 0.28% above benchmark and 1.72% below target.
Mr. Rudden explained that part of the reason for the rate of return being lower than target in this quarter was because the valuations of UK firms had converged. There was less difference between the P/E ratios of different firms.
Mr. Rudden drew members’ attention to the fact the fund was overweight in the financial sector and in consumer staples. These were sectors that Bernstein thought were currently undervalued.
Mr. Jones mentioned that the documents presented by Bernstein stated that commissions paid to brokers were 12.5 basis points (0.125%). He asked if they were disaggregated between execution and research costs. Mr. Rudden informed the Panel that the brokers did not disaggregate them. Bernstein had to make estimates as to what the commission for research was and what the commission for execution was.
The Chair enquired about Bernstein’s implementation of the principle of corporate social responsibility, which was an issue the Panel wished the LGPS to promote. Mr. Rudden informed members that Bernstein used their proxy votes to promote this and for example they were encouraging companies to take measures to reduce the amount of carbon dioxide they emitted.
iv. Wellington
David Heape and Mike Elwood addressed the Panel on behalf of Wellington.
Fund performance was 0.64% below benchmark and 0.94% below target in the quarter to September 2005. Annualised performance since inception was 1.64% below benchmark and 3.64% below target.
Mr. Heape and Mr. Elwood mentioned that, as the number of firms in the benchmark had increased, Wellington would be hiring more analysts so that they could investigate a larger number of stocks.
The Panel was informed by the representatives from Wellington that the sector that Wellington had done best in was healthcare in this quarter. The sectors they had performed worst in were I.T. and industrial stocks.
The Panel asked Mr. Heape and Mr. Elwood whether Wellington was exercising its proxy votes. They assured the Panel that the firm was exercising proxy votes as requested.
The Panel noted the reports of all the Fund Managers and their assurances that they would exercise extreme care and caution in managing Haringey Council’s Pension Fund.