To consider any items admitted at Item 3 above.
Minutes:
As an item of urgent business, Cllr Bevan raised concerns over private equity, specifically:
· the conduct of private equity firms;
· a lack of transparency in how the private equity firms carried out their work and their costs;
· the way in which private equity firms operated; and
· the ethics of the business actions of private equity firms.
Cllr Bevan noted that the Fund’s Pantheon Private Equity had underperformed its benchmark by 0.07% (page 103 of the report) and closed by suggesting a future Item on the agenda for the PCB to discuss the issue of private equity as a whole and the concerns raised above.
The Head of Pensions responded to Cllr Bevan, firstly noting that the figures on page 103 were not appropriate to assess the performance of Pantheon Private Equity, as they included cash which was being held for capital calls. The figures on pages 100 and 101 provided an overview of Pantheon’s performance with the cash removed. Pantheon had outperformed its benchmark by 0.87% in the quarter July – September 2018 and by 0.49% over the past 5 years. It was accepted that while the private equity asset class had the highest fees, historically it provided the highest returns. If private equity was taken out of the allocations, employers could see their contribution rates increase. Furthermore, Pantheon offered reduced fees for Local Government Pension Schemes.
The Fund’s Investment Consultant highlighted the five year performance of private equity, noting that it was both the best performing and best return asset class. He accepted that there had been unsavoury practices associated with private equity and that it was therefore important to invest with reputable firms. He stated that in his view Pantheon was such a reputable firm. If the PCB had any concerns/questions regarding private equity, they were recommended to invite Pantheon to provide a training session in which those concerns/questions could be discussed.
The Independent Advisor noted the developments in cost transparency, particularly in the last two years. He informed the PCB that the Local Government Pension Scheme Advisory Board had introduced a Code of Transparency in 2017. The code was voluntary but asset managers were encouraged to sign up to it to demonstrate their commitment to transparent reporting of costs. The PCB were also informed that the Financial Conduct Authority had set up an Institutional Disclosure Working Group, which included stakeholders. The Group’s aim was to gain agreement on (cost) disclosure templates for asset management services provided to institutional investors. This would send the message to asset managers that if they did not engage or sign up, investors would not invest with them. The Independent Advisor felt the industry was moving in the right direction and engagement with institutional investors was better than it had been in previous years. He reiterated the Investment Consultant’s view that Pantheon were a reputable private equity firm.
ACTION - It was decided that officers would invite BlackRock to attend the PCB’s 14th March 2018 meeting and Pantheon to attend the PCB’s July 2018 meeting.