THE FUND |
The
Fund
The Regulations require the
Committee to maintain a fund to provide for the payment of current and
prospective benefits to members of the Scheme. In order to ensure that
this
objective is achieved, the Committee must determine a suitable
investment
strategy, which provides both a high return on investments and an
acceptable
level of risk.
All income received by the Committee, including
employees' and
employers’ contributions, rents, interest and dividends are paid into
the Fund.
Expenditure, such as monthly pensions, retirement allowances, death
grants,
refunds and the administration costs of the Committee are met from the
Fund.
The assets and liabilities of the Fund are
valued every three years by
the Scheme actuary. Following each valuation, the actuary certifies the
employers' contribution rates to maintain the viability of the Fund. A
statement by the scheme actuary for the year ended 31 March 2011 is
included on
pages 79 and 80 of the Annual Report.
Fund
Management
The Committee retains overall responsibility
for the Fund, with the
power to appoint one or more fund managers to manage and invest fund
monies on
its behalf. In appointing fund managers, the Committee retains
statutory
responsibility for the management of the Fund and that responsibility
cannot be
delegated.
The Committee has a statutory duty:
· to take
account of the amount to be managed by each manager and be satisfied,
having
taken advice, that it is not excessive;
· to have regard
to the suitability of investments;
· to monitor the performance of the managers and
from
time to time review their appointment; and
· to take proper advice, obtained at regular
intervals.
The Committee maintains overall control of the
Fund by:
· Agreeing the overall investment objectives with the
fund managers taking into
account actuarial expectations and investment powers;
· Setting targets for asset allocation;
· Monitoring investment performance; and
· Monitoring investment transactions.
The Committee has compiled a Statement of
Investment Principles (SIP) as
required by the Local Government Pension Scheme (Management and
Investment of
Funds) Regulations (Northern Ireland) 2000.
During 2010/11 the Committee made one change to
its
specialist manager structure, replacing its global unconstrained equity
investment manager, Wellington Global Contrarian Equity, with Edinburgh
Partners. In October 2009, the Committee undertook a formal review of
the
Wellington Global Contrarian Equity mandate and accepted the advice of
its
investment advisor that the product was not a suitable fit with the
long term
investment strategy of the pension scheme. A
full public
tender exercise for a replacement global unconstrained equity manager
commenced
in January 2010. Edinburgh
Partners was appointed in June 2010 and,
following a due diligence exercise, the assets were transferred from
Wellington
Global Contrarian Equity to Edinburgh Partners in October 2010.
The allocation of the fund between asset
classes is
determined by the Committee at its annual strategy meeting, normally
held in
June each year. The Committee’s passive manager is responsible for
maintaining
the asset allocation within the agreed ranges. When a range is
breached, Legal
& General will rebalance the Fund back within the agreed
tolerance. At its
annual asset allocation meeting in June 2010 the committee agreed to
maintain it’s
existing overall asset
allocation.
At 31 March 2011, the Committee had the
following fund managers in place
to manage its investment portfolio:
|
Asset
Type |
Fund
Manager |
%
of Total Fund |
|
UK
Equities |
Baillie
Gifford |
10.3% |
|
Global
Equities |
Wellington
Management |
5.9% |
|
Bonds |
Aberdeen Asset Management |
7.3% |
|
Passive Fund |
Legal & General |
45.6% |
|
Property |
LaSalle Investment Management |
7.1% |
Investment
Objectives
The majority of the Fund’s liabilities are
linked to inflation and
salary growth. The overall objective of the Committee is therefore to
invest
the majority of the assets in investments which are expected to exceed
price
inflation and general salary growth over long periods.
Each
element
of the Fund portfolio has its own specific performance measure,
however, as an
overall target, the Committee expects the fund return over a 5 year
rolling
period to outperform the rate of increase in the Retail Price Index
(RPI) by
5%. The Committee monitors the performance of its investment managers
by
availing of HSBC’s performance measurement and reporting facility. Each
manager
is remunerated on a fee basis, dependent on the market value of the
portfolio.
The managers have each been given a performance
target and asset
allocation ranges compiled by the Committee, using indices applicable
to the
asset type and geographic market.
The standard target and benchmark for each
asset class of the fund as at
31 March 2011 is as follows:
|
Asset
Class |
Weight |
Target
/Benchmark Indices |
|
UK Equities |
32.0% |
FTSE
All Share Index + 2% |
|
Overseas Equities |
43.0% |
FTSE
All World Developed Index (ex UK) + 2% |
|
Bonds |
15.0% |
|
|
|
9.0% |
Merrill
Lynch £ Non Gilts (Investment Grade) + 0.75% |
|
6.0% |
FTSE
Over 5 Year Index Linked Gilts + 0.75% FTSE Over 5 Year Index Linked Gilts |
|
|
Property |
10.0% |
IPD Long Term Funds £100-£500m Index + 1% |
|
Total |
100% |
|
Market
Report
The
year to 31 March 2011 saw equity markets continue to perform well,
building on
the strong recovery witnessed in the year to March 2010. Markets were
well
supported throughout the year by monetary and fiscal policies across
the world
and particularly those adopted by the Federal Reserve in the US, who
introduced
a second round of quantitative easing in November and the Bank of
England in
the UK, which kept interest rates on hold at 0.5%. By the end of the
period
stronger than expected economic data and corporate profits helped risk
assets
such as equities. However the performance of markets was not smooth
over the
year.
In
the UK the economy had in fact shrunk over the fourth quarter of 2010,
whilst
many market commentators had expected Gross Domestic Product (a measure
of the
total output of a country) growth to remain positive. The reasons for
the
decline in output were attributed solely to the adverse weather
conditions
which many claimed resulted in the 0.5% fall in growth. By the end of
the first
quarter of 2011,
The
chart below shows the movement in major investment markets based on
month end
data over the most recent twelve month period, rebased to 100. The
chart shows
that there has been a large amount of volatility in the investment
returns over
the year. For example at one point during the year, the UK equity
market was
down more than 10% and then recovered considerably, ending the year up
nearly
9%. On a similar fashion the return on government bonds was strong up
until
August 2010 and then fell back before recovering again from February.
The
majority of the return from fixed interest government bonds (gilts)
came in the
first half of the period as investors worried about the economic
recovery and
started to expect the Bank of England to buy gilts in the market.
Corporate
bonds broadly matched the returns delivered on fixed interest
government bonds,
whilst the UK commercial property market continued its recovery, ending
the
year to 31 March 2011 up by just over 10%.
Fund
Value
The value of the Fund at 31 March 2011 was
£3,953m (2009/10 £3,556m), an increase of £397m (11.2%) on the previous
year.
Market values can fluctuate widely over short
periods of time, reflecting short-term changes in investment
conditions. In
contrast, the triennial valuation of the fund is concerned with the
long-term
and uses actuarial assumptions. The actuary’s report is shown on pages
79 and 80
of the Annual Report.
Investment
Performance
Over the year to 31 March 2011, the fund
achieved an overall return on the total assets of 10.4%. In comparison
the
Committee’s composite benchmark was 9.8%, resulting in a net excess
return of
0.6%.
The Retail Price Index increased by 5.3% and
Average Weekly Earnings increased by 1.7% during 2010/11.
The performance of the individual managers is
monitored against their corresponding benchmark on a quarterly basis.
The
performance returns for each fund manager for the year ended 31 March
2011 are
as follows:
|
|
Fund Return % |
Target Return % |
Excess
Return % |
|
Baillie
Gifford UK Equity Unconstrained |
21.67 18.03 |
10.72 11.39 |
10.95 6.64 |
|
Wellington
|
9.55 |
9.92 |
-0.37 |
|
BlackRock |
15.17 |
12.72 |
2.45 |
|
Jupiter |
15.44 |
10.72 |
4.72 |
|
Edinburgh
Partners* |
5.77 |
11.61 |
-5.84 |
|
Aberdeen |
6.22 |
6.87 |
-0.65 |
|
Legal
& General |
7.75 |
7.71 |
0.04 |
|
LaSalle |
9.12 |
11.70 |
-2.58 |
* Since inception 11 October 2010
The Committee's three UK equity managers,
Baillie Gifford, BlackRock
and Jupiter, outperformed
their respective targets during the year ended 31 March 2011,
delivering
returns of 10.95%, 2.45% and 4.72% respectively. Two out of the three
global
equity managers failed to meet their performance targets, with returns
relative
to the target of 6.64%, -0.37% and -5.84% for Baillie Gifford,
Wellington and
Edinburgh Partners respectively.
The Committee's fixed income manager, Aberdeen
also failed to meet its
performance objective with a relative return of -0.65%, while the
property
manager, LaSalle underperformed its annual target by -2.58%.
The Committee was also pleased with the
performance of its passive
manager, Legal & General, who matched or exceeded the index in
all eleven
markets in which it was invested during the year. In addition to
tracking the
various indices Legal & General maintained the Scheme’s overall
asset
distribution in line with the agreed asset allocation, within
pre-determined
control ranges.
All of the Committee's active managers work to
longer term investment
horizons, the minimum of which is 3 years,
and
accordingly the Committee is not unduly concerned with short term
performance
returns. The Committee does however have in place a robust quarterly
monitoring
process which aims to look behind returns to see the underlying cause
of any
underperformance. The Committee remains confident in the underlying
investment
process adopted by its external fund managers and expects all managers
to
deliver the target level of return over the longer term.
The Committee’s objective
remains to achieve the maximum return on fund investments in the longer
term,
having due regard to the liabilities of the fund and an acceptable
level of
investment risk. Accordingly, it is important that undue attention is
not given
to the returns for a single year in isolation.
The comparable statistics for the three and
five year
periods to 31 March 2011 on an annualised
basis are:
|
|
Three
Years %
p.a. |
Five
Years %
p.a. |
|
Return
of Fund |
7.37 |
5.11 |
|
Increase
in RPI Target (RPI + 5%) |
8.11 |
8.58 |
|
Composite
Benchmark |
7.53 |
5.63 |
|
Increase
in Average Weekly Earnings Target (NAE + 5%) |
6.78 |
8.34 |
Top
10 Equity Holdings at
31 March 2011
|
Company |
Total
Investment £’000’s |
%
of Total Equity
Portfolio |
|
BG
Group |
58,502 |
3.8% |
|
Rio
Tinto |
45,944 |
3.0% |
|
British
American Tobacco |
40,179 |
2.6% |
|
BHP
Billiton |
33,473 |
2.2% |
|
Standard
Chartered |
30,748 |
2.0% |
|
HSBC
Holdings |
28,327 |
1.9% |
|
Royal
Dutch Shell |
23,297 |
1.5% |
|
Vodafone |
23,153 |
1.5% |
|
Tullow
Oil |
19,347 |
1.3% |
|
Glaxosmithkline |
19,306 |
1.3% |
For a full list of all NILGOSC's equity holdings as at 31 March 2011, please click the following link: Equity Holdings
Disclaimer
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NILGOSC website is for the sole use of those authorised
to access it and may not be reproduced in any form without the express
permission of NILGOSC. To the extent that if it is passed on, care must
be
taken to ensure it is in a form which accurately reflects the
information
presented herein. All information is subject to change at any time
without
notice.
The intention is to provide general
information about NILGOSC’s investments. The information on ‘The Fund’
section
is not a comprehensive or a complete description of NILGOSC’s
investment
policies and should not to be taken as investment advice. Users should
not rely
on this information to make financial decisions and NILGOSC is not
liable for
any actions that may be performed based on the information contained on
this
website.
Whilst NILGOSC believes that the information
contained on this site is correct at the date of publication, no
warranty or
representation is given to this effect and no responsibility can be
accepted by
NILGOSC to any users for any action taken on the basis of the
information.
All performance data is supplied by HSBC.
Benchmark indices presented in the report are sourced from the compiler
of the
indices. Past performance is not indicative of future performance,
which may
vary.