Agenda and minutes

The Chair will ask the Committee Administrator to draw attention to the emergency evacuation procedure as set out under Note 8.

The Democratic Services Officer read out the procedure.

Apologies were received from Rowena Hayward, Steve Paines and Paul Shiner.

Members who have an interest to declare are asked to state:

(a) the Item No in which they have an interest;

(b) the nature of the interest; and

(c) whether the interest is personal or personal and prejudicial.

Any Member who is unsure about the above should seek the advice of the Monitoring Officer prior to the meeting in order to expedite matters at the meeting itself.

There were none.

The Chair announced that Cllr David Bellotti had become Chair of the Investment Panel for the remainder of the current Municipal Year.

There were none.

To deal with any petitions or questions from Councillors and where appropriate co-opted and added members.

There were none.

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

The Auditors will be present to answer questions.

The Finance and Systems Manager (Pensions) presented the report. He said that the Committee was being asked to approve the accounts before they went for final approval at the next meeting of the Corporate Committee. There had been two significant changes since the draft accounts were approved in June:

1. The insertion of a note to the Net Assets Statement regarding a Non Adjusting Post Balance Sheet Event, namely the announcement in the Budget of 22^nd June that pensions increases would in future be based on the CPI instead of the RPI, which would reduce the Fund’s pensions obligations by an estimated 5-8%.

2. The addition of note 18 concerning outstanding commitments totalling £73, 034, 402 relating to investments in property that would be drawn down in tranches by the relevant investment managers.

The District Auditor commented that the auditors had given an unqualified opinion on the accounts, but had noted two non-significant unamended errors and one presentational error. The Corporate Audit Committee would take the final decision as to whether these errors would be amended. Mr Hackett noted that the quality of working papers, which had been the subject of adverse comment by the auditors the previous year, had improved.

In response to a question from a Member, the District Auditor replied there had been a large reduction in the audit fees for the Fund this year because there had been a change of approach to the audit and because the Audit Commission had changed its fees structure. The Director of Resources and Support Services commented that next year there was likely to be a much greater reduction in the audit fees for the Council than for the Fund, because of the abolition of the Comprehensive Area Assessment.

RESOLVED

1. To approve the final audited Statement of Accounts for 2009/10.

2. To note the issues raised in the Annual Governance Report.

The Investments Manager presented the report. She said that the sections dealing with the governance and management structure of the Fund had been expanded and a statement included about the exercise by investment managers of voting rights at company meetings.

A Member suggested that because there was concern about a “pensions time bomb” from increasing longevity, the Annual Report should address this and give a clearer picture of the relationship between the assets and liabilities of the Fund. The Investments Manager felt this involved technical actuarial issues that might be difficult to explain in a report intended for a lay audience. Another Member agreed that any such statement would need to be carefully worded. In any case he felt that the Avon Pension Fund, with 80% of liabilities covered, was in a better position than many funds. Another Member suggested that there might be a simple statement that the deficit had widened because of a number of factors including reduced returns. The Director of Resources and Support Services advised that the Annual Report needed to be finalised now. Members agreed with his suggestion that a few sentences should be included giving a general picture of the funding situation.

A Member noted a discrepancy in the figures given for the funding level at 31^st March 2010 on page 31 of the Annual Report (“approximately 80%”) and on page 5 of the Funding Strategy Statement (“[83%]”). The Investments Manager explained that the figure in the Funding Strategy Statement was in square brackets because it represented the figure that would be given by the 2010 triennial actuarial valuation whose precise value was unknown at present.

RESOLVED

1. To approve the draft Avon Pension Fund Annual Report 2009/10.

2. To note the arrangements for distribution of the Avon Pension Fund Annual Report 2009/10.

David Cullinan of WM Performance Services made a presentation to the Committee. He distributed a set of slides, a copy of which is attached as an appendix to these minutes. Responding to questions from Members he said:

• that the performance of the major asset classes had been broadly similar, though their risk profiles varied

• the collective wisdom was that double digit returns would not be achieved in the future as they had been in the past

Members discussed whether there was evidence that active fund managers secured better returns. The Independent Adviser commented that it was difficult to find active managers with sufficient skills.

A Member commented that the longevity of Avon Fund pensioners was above average, so that the Fund had to achieve better than average returns. He noted that the Government had recently announced that local authorities would be able to borrow, so that there could be opportunities for the Fund to make loans and earn interest income.

Members thanked Mr Cullinan for his presentation.

The Investments Manager presented the report. She drew attention to the comments received from the employing bodies, which were attached as Appendix 2 to the report. She believed that no changes to the Strategy were necessary as a result of comments received.

RESOLVED

To approve the Funding Strategy Statement for general publication and distribution to the Fund’s employing bodies, subject to the insertion of information which can only be included when the actuarial valuation is complete.

The Finance and Systems Manager (Pensions) commented on the expenditure figures. An underspend of £392,000 was forecast for the full year, mainly because of an underspend on investment manager fees due to the later than expected appointment of a Global Equity Manager.

The Pensions Manager commented on the performance figures. The data cleansing exercise had been complex and time consuming and had resulted in a drop in performance to 60% against the target of 90%. Despite this, outstanding cases were below 5% against the target of 10%. Transfers were back on track and above target. However, the Government’s announcement that in future pension increases would be based on CPI rather than RPI meant that “club transfers” in and account had to be stockpiled until revised factors were received from the Government Actuary’s Department. Hits on the Fund’s website had more than doubled. The Director of Resources and Support Services suggested that staff be visiting the website because of concerns about redundancy and noted that they had been encouraged to visit it for information about the Hutton review of public sector pensions.

Members were pleased to note that there had been no long-term sickness of pensions staff during the period.

RESOLVED

1. To note the expenditure for administration and management expenses incurred for the 4 months ending 31^st July 2010.

2. To note the Performance Indicators and Customer Satisfaction feedback for 3 months to 31^st July 2010.

The Assistant Investments Manager presented the report and summarized the key facts. The value of the Fund’s assets had fallen by £149m (-6.1%) because equity markets had declined in reaction to fears of a double-dip recession. Over twelve months, however, the value of the assets had risen by £377m (18.6%). In terms of relative performance, the Fund was in line with the average of the WM Local Authority Fund universe. The report from JLT Benefit Solutions had noted that the Fund had benefited from the diversification of asset classes. Rebalancing of equities and corporate bonds had not been triggered during the period. The Financial Reporting Council had published the first Stewardship Code for institutional investors, which would replace the Combined Code. The purpose of the Code was to improve the quality of corporate governance through the promotion of better dialogue between shareholders and company boards and more transparency about the way in which investors oversee companies they own. It was intended to bring a report about the Code to the December meeting of the Committee.

Mr Lyons summarised the key facts in the JLT report. Jupiter’s, three-month performance had outperformed the benchmark, but relative longer-term performance had been disappointing. Jupiter managed an SRI-portfolio, which differed significantly from the benchmark, so that the volatility of returns was expected to be high. Conditions in the past quarter had been very favourable for the smaller companies in the Jupiter portfolio. There had been strong growth in emerging markets and Genesis Global Asset Managers had outperformed the benchmark by 1.6% in the last quarter. He drew attention to the graph on page 18 of the JLT report, which demonstrated that the Fund of Hedge Funds had contributed to a reduction in volatility of returns. A Member commented that the chart only showed the last year and that hedge funds had been very volatile two years ago, so that their performance should be kept under review. Mr Lyons said that the performance of Royal London Asset Management, the only active bond manager used by the Fund, had performed in line with the benchmark and that they had helped mitigate the decline in the performance of equities. The JLT report included qualitative assessments of Schroders and Partners for the first time. Partners had so far invested only £32.3m of the approximately £90m committed to them. However, they had already made distributions. This had been possible because they invested in properties bought at a discount from distressed sellers. Mr Lyons said that diversification of asset classes would be expected to deliver benefits over the long term because it was uncommon for all asset classes to decline in value at the same time.

Members commended Mr Lyons for the quality of the JLT report.

RESOLVED

I. That the last two sentences of paragraph 6.3 of the report be amended as given below by the deletion of the word struck out and the insertion of the words in bold type  

“As part of the valuation process, the Committee  ...  view the full minutes text for item 13.

Members are requested to note the recommendation that appendices 1 and 2 be taken in exempt session.

RESOLVED that having been satisfied that the public interest would be better served by not disclosing relevant information, and in accordance with the provisions of section 100(A)(4) of the Local Government Act 1972, the public be excluded from the meeting for this item of business because of the likely disclosure of exempt information as defined in paragraph 3 of Part 1 of schedule 12A of the Act as amended.

A note about the meeting of the Panel on 16 September 2010 had been circulated to Members before the meeting.

The Chair of the Investment Panel, Cllr Bellotti, summarised the discussions with TT International about why they had increased their holdings in BP after the Deepwater Horizon blowout had occurred. The Panel had also considered the high proportion of the Fund invested passively through BlackRock, which also increased exposure to BP, and had reviewed the property portfolio, meeting managers from Schroders and Partners.

Members again expressed doubt about whether there was evidence that active managers added value. Mr Lyons suggested that there was evidence that some active managers had skills in certain areas. However, they were often not given the opportunity to develop their skills over a market cycle. The Independent Advisor said that the balance between active and passive investment needed to be kept under review. The Chair suggested that this might be work that could be undertaken by the Investment Panel.

RESOLVED

1. To approve the revised Investment Management Agreement guidelines for Partners.

2. To approve the delegation of future annual reviews of the property portfolio to Officers in consultation with the Investment Panel, with any changes of a strategic nature being referred to the Committee for approval.

The Committee returned to open session.

The Investments Manager gave a verbal update. She said that one of the admitted bodies in difficulties was hoping to get funds within the next couple of weeks and to conclude its discussions with Pensions officers. Further reports would be made to the Committee. The Director of Resources and Support Services said that there were no plans to initiate legal action against any of the bodies.

RESOLVED to note the update and receive further reports at future meetings.

The Investments Manager presented the report. She said that additional meetings of the Investment Panel would be arranged before March 2011. An important piece of work for the Panel would be hedge funds.

The Pensions Manager said that the Fund employers’ annual conference would take place in February 2011. He would send details to members.

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