Agenda item

Vince McEntegart, a representative from Hymans Robertson, presented their latest report to the Pensions Panel.

Mr. McEntegart informed members that 70% of the Haringey Local Government Pension Fund was invested in equities. Approximately 60% of these investments in equities were in the UK stockmarket and 40% were overseas. Mr. McEntegart advised members that only 10% of worldwide equities were actually in the UK and 90% were overseas. He mentioned that this meant the Fund was disproportionately committed to UK equities.

Mr. Jones, the adviser to Trustees, advised members that investing a large proportion of equity investment in the UK stockmarket was a prudent course as the liabilities of the fund were in pounds sterling. Members were informed that most local authority pension funds in Britain preferred to put the bulk of their funds in assets priced in pound sterling.

The recommendation given by Hymans Robertson was that the percentage of assets invested in the UK stockmarket be decreased. Mr. McEntegart advised that more funds could be invested in China and other emerging markets since these markets tended to provide a high rate of return.

The fund was mainly investing in large companies that were quoted on the stock market. Hymans Robertson suggested that some money could be invested in the private equity market. This involved investing money in companies that were not quoted in the stock exchange. Mr. McEntegart informed members that, at the moment, the pension fund was investing in a relatively small number of companies. Investing in the unquoted firms’ market would help to diversify the fund. Furthermore, Mr. McEntegart informed members that some unquoted companies had done very well recently since their management had greater freedom to make bold, long-term decisions than firms that were quoted on the stockmarket and had to be responsive to short-term pressure from the markets.

Mr. McEntegart advised members that an issue they needed to bear in mind was whether to opt for active or passive management of their fund. At the moment, the Fund Managers the Haringey Pension Fund had were active managers. The Panel was informed that active management cost about 0.4% in fees per year (£2.5m). They were advised that passive management would be cheaper. However, they were informed that, if they opted for passive management, they would not have a chance to make above-average returns due to good stock-picking.

According to information provided to members by fund managers at previous meetings of this Panel, over the past two and a half years, the Council’s Pension Fund had underperformed the market. There thus had not been good results from active management. However, the Director of Finance and Mr. Jones informed members that this was a relatively short timescale to judge the effectiveness of the fund managers’ investment strategy. They advised members that the benefits and failures of active management could be more effectively measured over a longer timescale.

The Director of Finance informed members that it was his recommendation that, as the stock market was not perfect in reflecting all relevant factors in the share price of companies, there would be some shares that were undervalued and would later increase to a better value. He was of the opinion that good fund managers would be able to identify those stocks and so secure above average returns. Therefore, he recommended that the fund continue with active management.

Mr. McEntegart advised the Panel that the proportion of the fund’s assets invested in property should be increased.  He informed members that, over the past few years, property had risen in value sharply and was able to provide a good income as well as capital growth. He recommended that 10% of the fund should be invested in property.

Mr. McEntegart advised members that about 30% of the fund’s assets were in currencies other than sterling. To reduce the risk of making losses due to currency fluctuation, he recommended that the fund engage in hedging.

The Chair stated that he sought the advice of the Director of Finance on the best strategy for the fund to follow. The Director of Finance had recommended a continuation of active fund management and a reduced proportion of funds in UK equities and an increased proportion in property.

RESOLVED:

1.      That the Haringey Council Pension Fund continue with active fund management.

2.      That the proposed benchmark for the fund be 30% in UK equities, 30% in overseas equities (of which 10% in US, 10% in Europe ex UK), 5% in Japan, 2.5% in Pacific ex Japan and 2.5% in emerging markets), 5% in global equity, 5% in private equity, 10% in property, 6% in index linked, 7% in UK gilts and 7% in UK corporates.

3.      That currency risk be 50% hedged.

4.      That the advisor to trustees and the Director of Finance estimate the costs of introducing the new benchmark.