Meeting documents

88 EMERGENCY EVACUATION PROCEDURE

The Clerk read out the procedure.

89 APOLOGIES FOR ABSENCE AND SUBSTITUTION

Apologies were received from Carolan Dobson, Paul Shiner Cllr Gordon Wood

90 DECLARATIONS OF INTEREST

There were none.

91 TO ANNOUNCE ANY URGENT BUSINESS AGREED BY THE CHAIRMAN

The Chairman announced that there were two items.

1. Terms of Reference for the Investment Panel

These had been circulated to Members. A copy is attached as an appendix to these minutes. A Member referred to the email he had sent stating that he was content with the proposed terms of reference, but believed that the appointment of the Chair of the Panel should be subject to proportionality rules and be made by the Council. The Clerk informed the meeting that a recommendation that the Chair of the Panel be appointed by the Council would be included in the Council Solicitor's submission about appointments to Committees to the next Annual General Meeting of the Council.

RESOLVED that the proposed Terms of Reference for the Avon Pension Fund Committee Investment Panel be approved and submitted to the next Annual General Meeting of Bath and North East Somerset Council.

2. Possible termination of Admission Agreement

A Member said that he and other Members had been contacted by a voluntary organisation which is an admitted body in the Fund. The admitted body is seeking to leave the Fund but is having difficulty in meeting its outstanding liability. The Investments Manager explained that the admitted body was still a member of the Fund and was negotiating with the Fund as to the exit options. No decisions could be made until all the options had been explored. She promised to keep Members informed of developments.

The Member requested a report be submitted to the next meeting clarifying the role of the Committee in resolving such issues on termination with community admission bodies.

The Member suggested that the Fund might need to reconsider its admissions criteria in the light of these cases. The Investments Manager replied that employers are only admitted to the scheme if their liabilities are guaranteed or covered by a bond and therefore there should not be a problem with recently admitted bodies.

92 ITEMS FROM THE PUBLIC - TO RECEIVE DEPUTATIONS, STATEMENTS, PETITIONS OR QUESTIONS

There were none.

93 ITEMS FROM COUNCILLORS AND CO-OPTED AND ADDED MEMBERS

There were none.

94 MINUTES: 18 DECEMBER 2010

These were approved as a correct record and signed by the Chairman.

95 REVIEW OF INVESTMENT PERFORMANCE FOR QUARTER ENDING 31 DECEMBER 2009

The Assistant Investments Manager introduced this item. He drew attention to the return in January of -1.8%, adding that a positive return of 3.1% had been achieved in February. The underperformance of the Fund against the customised benchmark over the year to 31 December 2009 was largely explained by the underperformance of Jupiter against its benchmark. He drew attention to the new section 10 of the report, which gave information on the activities of the Local Authority Pension Fund Forum (LAPFF), of which the Fund was a member.

Mr Lyons presented the JLT performance review to 31^st December 2009, attached as an appendix to the agenda report. He said that the quarter had seen equity markets continuing to recover from the downturn caused by the financial crisis. However, UK gilts had fallen slightly. Most managers had made good returns over the quarter, except TT International. He noted the excellent performance of Genesis Emerging Market Fund, which had achieved a 10% return over the quarter and 69% over the year. Overall, there was no need to be concerned about the performance of any manager. He highlighted that the tactical bond position had been reversed on 27 January 2010, which had achieved a net benefit for the Fund of £4.2m.

A Member referred to the statement about the ending of quantitative easing on page 5 of the Review and the impact of the potential sale of the Government's vast bond holding. He suggested that it was improbable that the Government would try to sell all the bonds it held at the same time. Mr Lyons agreed that the Bank of England had shown no intention of selling all bonds in the short term, but it this had been a concern raised by a number of commentators on the bond market and bond yields had risen slightly to reflect this.

A Member referred to the performance of Jupiter, and said that they had gone through a similar cycle in the past. The SRI constraints in their mandate tended to favour investments in small caps, which were the first to suffer in a recession, but tended to recover quickly. Mr Lyons agreed that Jupiter's performance was strongly linked to the performance of small companies.

A Member asked about the slow progress by Partners in property investment. They had invested only 28% of the funds allocated to them. The Investments Manager replied that there were differences between the UK property market, which was developed and relatively homogeneous, and overseas property markets which had not experienced the same fall or rebound in asset values. It was also taking longer for managers to complete due diligence process than in the past. This had previously taken three months, but was now more like six months because of increased scrutiny of legal agreements in particular. In addition, in 2009 financial institutions forced to sell property had found that there was a considerable gap between the prices they were asking and what buyers were prepared to pay. At year end property portfolios were revalued at more realistic levels and therefore there is good reason to think that Partners investments on behalf of the Fund would speed up over the next year.

A Member noted the statement in paragraph 6.1 of the agenda report that the funding level was now 83% of liabilities and the information given in paragraph 6.2 that it was unlikely that government guidance would be received about the degree of flexibility that administering authorities would be permitted in the 2010 valuation. He hoped that there would not be a mad rush to achieve a funding level of 100% of liabilities causing contribution rates to be raised to levels detrimental to employers struggling with reduced funding over the next few years. He would like to hear the view of the actuaries. A Member expressed concern at the increase in liabilities. She believed the situation could only worsen because of increased longevity. Members debated this. The following comments were made:

The Investments Manager reminded Members that a workshop would be held in July to discuss the Funding Strategy Statement with the actuary before it is distributed to employing bodies for comment.

RESOLVED to note the Fund's return on investments and details of manager performance as set out in the report.

96 INVESTMENT PANEL MINUTES

RESOLVED to note the draft minutes of the meeting of the Investment Panel held on 25 February 2010.

97 REVIEW OF INVESTMENT STRATEGY - RECOMMENDATIONS FROM INVESTMENT PANEL

The Investments Manager introduced this item. She said that the Panel's recommendations covered two topics: (i) Socially Responsible Investment (SRI) and corporate governance; (ii) the appointment of a global equity manager. The Panel had requested further information before agreeing recommendation 2.1(b). This information in appendixes 1 and 2 had been circulated and the Panel was now recommending that the Jupiter mandate should be modified to permit investment in the UK extractives sector.

The Independent Investments Adviser said that the Panel had detailed debate about SRI and corporate governance. The Panel had hoped that a "direction of travel" in relation to these issues could be established. They had agreed that more flexibility should be incorporated into the Jupiter mandate. They had discussed the degree to which the Fund should take an interest in the policies and practices of the companies in which it invested and the degree to which it wanted to engage with companies to promote responsible investing.

Some Members asked for a definition of "UK extractives" in relation to the Jupiter mandate. One said that he could not agree to change the mandate without such a definition. He had concerns about open-cast mining, which could be very destructive. Another Member agreed that a definition was required of "UK extractives" and of what a socially responsible approach to investment in this sector meant. The Independent Investment Adviser referred to the information contained in the Brief on defining the proposal to modify the existing UK SRI equity specialist mandate attached as Appendix 1 to the agenda report; the section headed Portfolio comparison did actually identify the main companies in the sector. A Member agreed that the information was helpful to some extent, but suggested that "UK extractives" would also include many Russian mining companies which were listed on the UK stock exchange and other foreign companies involved in extractive activity in the UK.

A Member said that he had been originally been opposed to changing the Jupiter mandate at the Investment Panel, but had changed his mind because of the information subsequently circulated. He believed that Jupiter had made their commitment to overall sustainability very clear and would be prepared to support the change on that basis. He still believed that changing the mandate would be a change of policy, but noted the legal advice that had been received to the contrary. Another Member, however, noting the statement by Jupiter in the Brief that their investment approach would be to "only invest in those companies with a high environmental/CO2 impact that are actively repositioning their businesses for a changing regulatory framework" suggested that this showed a passive approach of waiting for companies to be forced to change through regulation rather than an active approach of encouraging change. He feared that this approach could bring discredit on the Fund. Another Member said that Jupiter did engage actively with companies and she pointed out that the Fund was already investing in BP through other portfolios, without the possibility of engaging with the company as it could do through Jupiter. Another Member suggested that the limitation of the existing mandate caused Jupiter to outperform over the long term because their investments were skewed towards small caps; changing the mandate would dilute the focus on small companies and the potential for enhanced performance could be lost. Other Members agreed. One said that the Jupiter fund had been set up to be different; and its performance could be expected to improve as small companies recovered. Another said that Jupiter accounted for only a small percentage of the Fund, so the impact of changing the mandate would be minimal. The Head of Business, Finance and Pensions suggested that the main issue was whether inclusion or exclusion was the most effective approach to SRI. He suggested that Jupiter should be invited to meet Members to discuss their approach and how they would apply SRI criteria to the extractives sector in more detail.

The Investments Manager replied in the negative to a Member who asked whether LAPFF could provide a full vote monitoring service.

RESOLVED:

The recommendation to amend the Jupiter mandate to permit investment in the UK extractives sector was defeated by 5 votes to 4.

98 REVIEW OF STATEMENT OF INVESTMENT PRINCIPLES

The Investments Manager introduced this item. She said that the first draft had been reviewed by the Investment Panel, whose amendments had been incorporated in the version attached to the agenda report.

RESOLVED:

99 PENSION FUND ADMINISTRATION - BUDGET MONITORING 2009/10, PERFORMANCE INDICATORS FOR QUARTER ENDING 31 FEBRUARY 2010 AND RISK REGISTER ACTION PLAN

The Finance & Systems Manager (Pensions) highlighted the key facts in the financial report. The forecast variance for the year to 31 March was an overspend of £1,185,000. Excluding Investment Manager costs, which were higher because of a rise in market values, there was a forecast net underspend of £206,000. Information systems were forecast to be overspent by £248,000 largely because of the costs of implementing the Altair system being charged this year, rather than spread over three years as planned. This re-phasing was due to the requirements of capital spending regulations and did not represent additional expenditure.

The Pensions Manager presented the performance indicators and customer satisfaction feedback. He said that the quarter was one of "business as usual". A data cleansing exercise had been ongoing in preparation for the forthcoming valuation. Clearance of the backlog of transfers in and out that had arisen while waiting for guidance from the Government Actuaries Department had begun in the quarter and it was expected that the remaining cases would be cleared in the near future. Overall performance was ahead of target. Sickness was well below target. There had been no complaints. The redesign of the Annual Benefits Statement had led to delays in issuing some statements by the target date of 30^th September 2009, but phased sending had continued after that date and all active members' statements would be sent by the statutory deadline of 31^st March 2010. Customer satisfaction was extremely good. The only pension clinic to have been held was in South Gloucestershire, which had achieved a 98% satisfaction rating from members attending.

A Member asked about progress in achieving an improved supply of information from Bath and North East Somerset Council, which had been identified at the previous meeting as the worst performing employer in this regard. The Pensions Manager replied that discussions had been held with B&NES outsourced supplier of HR services, who had provided Pensions with a dedicated member of staff to deal with information errors.

A Member expressed concern that to date Altair had been all cost and no benefit. The Head of Business, Finance and Pensions replied that a meeting had been held with Altair to discuss problems, many of which were caused by the Council's own in-house supplier of IT services rather than the software. A decision had been taken to give priority to extracting the data required for the valuation rather than implementing Altair immediately.

Some Members expressed concern about future staffing levels in Pensions in the light of the pressure likely to fall on the service because of redundancies. They said that it was important that employees whose jobs were at risk had prompt information. One Member also urged that the training budget should not be seen as a soft target when savings were required. The Pensions Manager said that a reduction in the training budget was planned, but this was because the previous year's budget had been overestimated. Some efficiencies could be achieved by through more electronic delivery of information, but Pensions were aware that 30% of staff did not have access to a computer at work. The Head of Business Finance and Pensions said that the cost-effectiveness of the Pensions service was measured against the benchmarks of other Pension Funds and action was taken where it appeared that efficiencies were achievable. The Pensions Manager commented that as the Pensions service also administered the Avon Fire and Rescue Pension Scheme, it was well aware of the additional work imposed if two schemes were to be administered.

A Member asked whether automatic enrolment would apply to the staff of employers in the Avon Pension Fund from 2012 under new Government regulations. The Head of Business Finance and Pensions confirmed that it would. Staff would automatically be enrolled in the Avon Pension scheme when they began working for an organisation within the scheme, though they would be able to opt out. It was difficult to assess what the impact would be on employers.

RESOLVED:

100 BUDGET AND SERVICE PLAN 2010/13

The Pensions Manager introduced this item. He said that the focus of the plan was on developing relationships with employers and on the investment strategy. The Government was planning to introduce national cost sharing for the Local Government Pension Scheme in three years time. Although not a legal requirement, the government was expecting local government funds as a matter of good practice to put in place an Administration Strategy Statement. Of the 97 local authority funds, only 5 so far had such a policy document in place at the moment. It was planned to put the strategy statement for the Avon Pension Fund before the Committee in December 2010. The strategy would work through individual service level agreements (SLAs) with individual employers, which would allow the Fund to pass costs to employers if they persistently failed to provide information within the SLA framework. The Fund had established a Employer Relationship team. The number of employees in the scheme had not increased dramatically, but the number of employers had (now 106).

A Member asked why, if the costs of Altair had fallen within the current financial year, the IT budget for the next two years had not decreased. The Pensions Manager replied that Altair had been upgraded and support would no longer be offered for the old version. There would be one-off costs for training and the purchase of licences.

RESOLVED to approve the 3-year Service Plan and Budget for 2010-13.

101 WORKPLANS

RESOLVED to note the workplans for the period to 31 March 2011.

The meeting finished at 3.54pm.

Chairman........................................................

Date signed and confirmed.................................