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THE FUND
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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.
Fund Management
The
Committee retains overall responsibility for the Fund, with
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.
· 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 investments powers.
· Setting
targets for asset
allocation.
· Monitoring
investment
performance.
· 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 (
During
2008/09, the Committee expanded its specialist manager
structure with the appointment of four new unconstrained managers. Wellington and Baillie
Gifford were each
appointed to manage a global unconstrained equities mandate, while
BlackRock
and Jupiter were selected to manage UK unconstrained equity mandates. The two global
unconstrained mandates were
funded in July 2008, with the UK unconstrained equity portfolios funded
in
early November 2008. 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.
As
31 March 2009, the Committee had the following fund managers in
place to manage its equity and fixed interest portfolio:
UK
Unconstrained
BlackRock
Investment Management
Equities
Jupiter
Investment Management
Global
Equities
Global
Unconstrained Baillie Gifford
Equities
Wellington
management
Bonds
Aberdeen
Asset Management
Passive
Fund
Legal
& General
Property
LaSalle
Investment Management
In
January 2009, the Committee terminated its mandate with it
global equities manager Alliance Bernstein following a period of
significant
underperformance. While
the decision to
terminate a mandate would not normally be made on the basis of poor
performance
alone, a formal retention review by the Committee’s Investment Advisor
concluded that in light of the severe underperformance in the second
half of
2008, it was hard to justify the continuation of the Alliance Bernstein
mandate. The
portfolio was transferred
to Legal and General, who are managing the funds on a passive basis in
the
interim.
At
its annual asset allocation meeting in June 2008, the committee
agreed to maintain its existing allocation in equities but made changes
to its
cash and fixed income holdings. The
committee decided to allocate 10% of the total fund (excluding
property) to
corporate bonds by way of a reduction in fixed interest gilts and cash
holdings. In
addition, the fixed allocation to property
was increased by £50m from £250m to £300m. The change in the asset
allocation
was effective from 1 December 2008.
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 investment
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.
|
Asset
Class |
Weight |
Target/Benchmark Indices |
|
37.8% |
FTSE
All Share Index + 2% FTSE
World UK + 2% MSCI
World Developed UK + 3% FTSE
All Share Index |
Overseas
Equities
|
44.4% |
FTSE
All World Developed Index (ex UK) + 2% FTSE
All World Index (ex UK) + 3% FTSE
All World Index + 3% MSCI
World developed Index (ex UK) + 3% |
|
FTSE
All World |
||
|
FTSE
All World Developed Europe ex |
||
|
FTSE
All World |
||
|
FTSE
All World Developed Asia Pacific ex |
||
|
S&P/IFC
Investable Composite |
||
|
Bond
Specialist |
14.7% |
|
|
|
10.0% |
Merrill
Lynch Sterling Non – Gilts (AAA-A) + 0.75% iBoxx
£ non-Gilt ex BBB |
|
|
4.7% |
FTSE
Over 5 Year Index Linked Gilts + 0.75% |
Cash
|
3.1% |
LIBID
= 0.20% |
Total
excluding Property
|
100% |
|
Property
|
£300m |
IPD
Long Term Funds £100-500m Index + 1% |
The
standard target and benchmark for each asset class of the fund
as at 31 March 2009 is as above.
Market Report
The
year to 31 March 2009 was when the impact of the global financial
crisis, which began nine months earlier in the summer of 2008, spread
to the
real economy. Corporate
profits fell,
unemployment increased, and national government found their finances
rapidly
deteriorating. All
risk bearing assets
such as equities, corporate bonds and property continued falling in
value. Capital was
withdrawn from the investment
markets. This was
for many reasons. Some
investors became more risk averse and
sold out of the risky assets and purchased assets perceived to be such,
such as
government bonds. Other
investors,
especially financial intermediaries such as hedge funds and property
fund
managers, faced demands from their won investors for cash. This could only be raised
by selling assets
at any price. Some
investors took the
view that with the economy going into a downturn the prospects for good
returns
on their investments had fallen, and so decided to exit the market or
at least
reduce their exposure. For
full
commentary please see Annual Report.
The
graph below shows the indexed returns on the main sectors for the
year to 31 March 2009.
Fund Value
The
value of the Fund at the 31 March 2009 was £2,474m (2007/08 £3,115m), a
decrease of £641m (20.6%) 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.
