Agenda and minutes

Councillor David Simmonds declared a general Non-Pecuniary Interest as he was a member of the Teachers' Pensions Board. He remained in the meeting during discussion on all items.

There were no conflicts of interests reported.

Agreed as an accurate record.

To confirm the items of business marked Part I will be considered in public and that items marked Part II will be considered in private.

That Agenda Item 10 be considered in private for the reasons stated on the agenda and the rest of the items be considered in public.

Scott Jamieson, Pensions Advisor, attended the meeting and provided the Board with a presentation on the background to the asset allocation of the Hillingdon Pension Fund.

The Board was informed that there was an element of risk in the investment strategy of fund managers. In summary:

·         Actuarial arithmetic required that assets generated a 3% real return.

·         Reference was made to the real return available from long term risk-free index linked bonds being -1% per annum. The Board was informed that the shortfall had to be made up through either a risk-based asset strategy or through higher pension contributions. Members were informed that actuaries now took a long term investment view and it was recognised that contributions would have to go up at some point.

·         Equity markets had compounded at 6% (real per annum) but the Board was informed that when equity markets fell, they sometimes fell very heavily.

·         The scheme currently employed an asset strategy which was pursuing a less than 4% real return. This combined a mix of equities and bonds.

Discussion took place on the investment outlook and the following comments were made:

·         Low interest rates had become the norm.

·         The world economic growth was set to remain moderate and insufficient to address indebtedness burden.

·         Deflationary pressures were set to remain

·         Not a lot of Inflation.

·         Corporate earnings as a percentage of GDP were elevated.

·         Currency volatility was high and was fuelled by competitive devaluations.

·         Macro-economic policy explicitly supported real assets, but there were significant risks.

·         World economy was maturing with a greater number of people living longer which resulted in a greater number of dependencies.

·         Reference was made to systematic threats in China and the possibility of leaving the European Union.

·         Bonds were now on negative yields.

·         There had to be a focus on passive management with a focus on costs.

Reference was made to the key points around the Fund Construction, whereby the current difficult conditions were expected to persist over medium term. Returns needed to be "ground out" without taking excessive risks.

The Fund was structured to collect illiquidity premia, to collect contractual income streams, to capture under-priced defensive equity growth, to diversify asset allocation risk and to keep costs down.

The Board was provided with details of the spread of the Fund's current asset allocation and discussion took place on the investment strategy adopted.

Members were provided with details of the Equity Strategy (46% Assets under Management):

·         The Investment Outlook supported risk-taking but with a defensive bias.

·         The general approach was to maintain a reduced cost defensive strategy which combined passive funds with yield focused and vale active allocations.

·         'Value' style pursued cheap stocks on a high yield.

·         Shares with a long term track record of raising dividends were pursued which were a proven style.

·         Costs were reduced with significant passive exposure.

Reference was made to the equity managers and UBS who had been retained since 1989. Their focus was on pursuing stocks with a high yield and low price earnings ratio. In  ...  view the full minutes text for item 31.

The Board was informed that officers and AON Hewitt had met to look at the compliance checklist to measure where the Scheme was in relation to the Pensions Regulator requirements and to identify any gaps in governance where improvements were needed.

Overall, the Fund met the Pension Regulator requirements, but there were some minor improvements which were required. These improvements were around the administration side of the Fund and a plan of action would be set out to improve these areas.

Issues discussed were around the Terms of Reference of the Board, and the Conflicts of Interest Policy which had been agreed was not required.

RESOLVED:

1.  That the information provided be noted.    

A general discussion took place on the work of the Pensions Board and where should this reported to. The consensus was that an Annual Report should be submitted to the Council.

RESOLVED:

1.  That the information provided be noted.    

Discussion took place on the draft work programme and it was agreed that the draft Communications Strategy be included in the work programme for the next meeting of the Board.

In addition, Members asked that an item be place on the agenda for the next meeting on a draft Risk Management Policy.

Officers were asked to give consideration to a training item for the next meeting.

The draft work programme as updated was noted.

Members of the Board are asked to bring their copy of the Pensions Committee agenda to the meeting.

This item was discussed as a Part II item without the press or public present as the information under discussion contained confidential or exempt information as defined by law in the Local Government (Access to Information) Act 1985.  This was because it discussed ‘information relating to the financial or business affairs of any particular person (including the authority holding that information)’ (paragraph 3 of the schedule to the Act).

The Board was provided with the agenda and the minutes for the last Pensions Committee which took place on 23 March 2016 and noted the reports.

RESOLVED:

1. That the reports which were considered by the Pensions Committee and the update provided by officers be noted