Agenda item

The Investments Manager introduced this item. She reminded the Panel that at the last meeting of the Avon Pension Fund Committee a Member had been concerned about the suspension of the corporate bonds/equities rebalancing policy, suggesting that it should either be abolished or modified. As a result JLT had proposed a revised policy for rebalancing that is flexible to implement across all market conditions.

Mr Finch introduced the JLT review report, circulated as Appendix 1. He said that the report suggested that wider bandwidths for the switching would result in fewer transactions and hence lower transaction costs in a volatile market. It also suggested that property and the Fund of Hedge Funds might be included in the rebalancing policy Framework.

The Chair said that he wished to understand which officers would be responsible for taking decisions under the policy and how they would arrive at a decision. He asked what would happen if a decision to whether or not to implement the trigger had to be considered when officers were absent on leave. The Head of Business, Finance and Pensions said there would always be cover. Those normally involved in the decision would be the Investments Manager, Assistant Investments Manager, Mr Finch and the Head of Business, Finance and Pensions, or, if he was on holiday, the Strategic Director of Resources. There was a continuous review of market conditions, so that it was unlikely that a possible trigger situation would come entirely out of the blue. The Chair pointed out that one of these key officers could be on holiday for several weeks. The Head of Business, Finance and Pensions replied that if it appeared that a trigger situation could arise during the leave of a key officer, a position would be agreed in advance. The Investments Manager said JLT would always be consulted before a decision was taken. She thought that a pragmatic approach was needed; there had to be a trigger, but one that was too mechanistic could cause problems. The Chair suggested that the recommendations in the report should be amended so that tactical reviews and decisions would be taken by Officers “having consulted the Investment Advisers”. The Head of Business, Finance and Pensions said that it would be absurd to implement any rebalancing policy if there was a complete market collapse. Mr Finch said that the aim was to produce a more flexible policy, but there was no question of removing the Committee’s governance responsibility.

RESOLVED

The Panel recommends that a rebalancing policy is maintained by the Fund, subject to the following amendments:

1.  For equities/bonds, introduce a “two-tiered” set of boundaries:

i)  a deviation of between 2% and 5% is subject to a tactical review by the Officers having consulted the Investment Advisers;

ii)  a deviation greater than 5% results in an automated rebalancing back to at least +/- 2% weighting as a default. An additional tactical decision is then taken by the Officers supported by the Fund’s consultants on whether this is fully rebalanced back to the central benchmark allocation or otherwise.

2.  For the less liquid assets, introduce a “soft” bandwidth at which the allocation should be reviewed and discussed by the Investment Panel no less than six-monthly:

  i.  Property: +/- 5%;

  ii.  Fund of Hedge Funds: + 5%.