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Agenda and draft minutes

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No. Item




All Members of the Committee were present.


Apologies for absence were received from John Turnbull, Strategic Director of Finance and Governance, and Jake Bacchus, Director of Financial Services.  They were represented by Rob Manning, Director of Return on Investment.



Members are required to declare any pecuniary or non-pecuniary interests they or their spouse/partner may have in any matter which is to be considered at this meeting. Interests are defined on the inside cover of this agenda.


Councillors A Hemsted and Wheeler declared a general non-pecuniary interest as members of the Local Government Pension Scheme.




The minutes of the meeting held on 26 June 2019 were approved as a correct record and signed by the Chair




The Chair noted with sadness the recent passing of Dave Knight, Observer on the Committee.  Dave had provided the Committee with wise counsel over many years and helped to safeguard the interests of Fund members, work which he carried on in retirement, and he would be sorely missed.  The Council on 12 September had stood for a minute’s silence in tribute.


The Committee asked that their sincere condolences be conveyed to his wife Ann and children.



The committee reports are open, but the press and public may be excluded from the proceedings for consideration of item 8 and 9 in accordance with Section 100(A) of the Local Government Act 1972 as amended, on the grounds that consideration of the appendices to the items would involve the  ...  view the full agenda text for item 17.


The press and public were excluded from the proceedings for consideration of Items 8 and 9 on the agenda as recommended (Minutes 20 and 21), in accordance with Section 100(A) of the Local Government Act 1972 as amended, on the grounds that the information in Appendices 2 and 6 to Item 8, and the appendices to Item 9 was exempt to as defined in Part 1, Paragraph 3 of Section 100 (A-H) of the Local Government Act 1972 and Schedule 12A as it related to the financial or business affairs of any particular person (including the authority holding that information) and the disclosure would not be in the public interest.




The Committee received training from Tomi Nummela of Mercer, on the environmental, social and governance aspects of investment, with a focus on investing in a time of climate crisis.  The presentation slides have been appended to the electronic version of the minutes.


Mr Nummela noted that in 2016 Waltham Forest Council announced that it would become the first UK local authority to announce it would divest its pension fund away from oil, gas and coal stocks over a five-year period.  Since that time, carbon and climate change have become of ever greater concern and debate, and the financial and ethical arguments increasingly overlap, and the financial arguments not just in favour of divestment but broader decarbonisation have grown stronger.


Therefore the emphasis on oil, gas and coal companies and extraction of fuels has broadened enormously to embrace carbon generally, to include the intensity of the carbon element in the activity concerned.  Decarbonisation is if anything achieving more than straightforward divestment, embracing energy efficiency and the transformation to carbon-neutrality.  It is this shift in emphasis that is increasingly informing both ESG and financial investment decisions.


The presentation led to a discussion in which the following points were made:


Five-year target – Councillor Rayner recalled that in 2016, the Committee was informed that divestment from fossil fuels which then stood at 6 per cent of the Fund would take five years to eliminate.  Now it is at 3.4 per cent.  He deduced that the Committee was not being told that it could not complete the process in five years; that other investments have a carbon element underlying them, and that the ethical and financial approaches to divestment were at odds.


Ethical and financial - Councillor Wheeler said that the divestment was indeed for ethical reasons, and the financial case supporting it grew stronger.  He cited cement as an example of something the Fund might invest in, but where the emission of carbon may be large.


Mr Nummela said there was historically a UK bias to oil, and the Fund is UK overweight.  Bringing carbon intensity further into the equation point to the selection of low-carbon managers.  The policy should be firmed up with targets, and shareholders realising that LGPS funds are serious about looking at carbon in the round.


He added that there were subtleties below the heading of carbon investments.  If the 3.4 per cent were all coal, that would be far worse than all gas – although gas is now more expensive for generating electricity than renewables.  At the same time green technologies are advancing rapidly, and although the five-year target set in 2016 is still relevant, it does not take account of greater knowledge and investment opportunities. 


Evolution of approach - Debbie Drew added that this was indeed a learning process rather than a policy proposal.  However, in ESG investment terms, the process was becoming easier, as the transport and manufacturing sector took increasing account of the carbon element of their activities, and therefore so did fund managers.


Councillor  ...  view the full minutes text for item 18.




The Committee received training from James Hunter of Mercer, the Fund Actuary, on the valuation of the Fund.  The presentation slides have been appended to the electronic version of the minutes.

Members said they would appreciate further training in this area, and an evening session from 4 – 9 p.m. before Christmas was suggested.


Mr Hunter said that the valuation was a strategy, and not a snapshot as was commonly supposed.  It was about balancing risk versus long term affordability.  Key considerations were the equity protection implemented this year, the investment strategy, budget considerations, policy updates and the implications of the McCloud case, reducing the recovery period, and legislative changes.


The Chair thanked Mr Hunter for his presentation, which led to a discussion in which the following points were made.


Councillor Bellamy suggested that a piece of work on the impact locally of the McCourt and other related cases and how this compared to other local authorities would be welcome.


Mr Gent reminded the Committee that risk of itself was not a bad thing: the question was how it is managed.

Although Mr Hunter was not in a position to indicate the likely outcome of the valuation, he said that at present he had no serious concerns.




The Committee requested a report on the likely impact locally of the McCourt and other related cases and how this compared to other local authorities.




Additional documents:


Consideration was given to a report of the Strategic Director of Finance and Governance and Pensions and Treasury Manager, updating the Committee on the Scheme Advisory Board project – Good Governance in the LGPS, and the work of Hymans Robertson in developing options for change regarding the relationship of LGPS pension funds to their existing host authorities.

John Raisin introduced the report and reminded Members of the four models under consideration, as discussed at previous meetings and set out in the report.  He stressed, however, that good governance was not just about structures but even more so standards.  Hymans Robertson’s approach is outcome-based, and there are important considerations of resourcing and administration. 


Councillor Wheeler said that his preference was for Model 1, which while allowing for flexibility would ensure that the Fund stayed close to the Council.  It did not envisage major changes to an arrangement that he believed worked well.


It was underlined that pensions are a council, not an executive function, and should remain so.


The Chair said that Members would appreciate a chart and glossary showing where national and local pensions bodies sat, their responsibilities and interrelationships.




The Committee


(a)  noted the report; and


asked for a structure chart and glossary as outlined above.



Additional documents:


Consideration was given to a report of the Strategic Director of Finance and Governance and Pensions and Treasury Manager, presenting performance to the quarter and year to 30 June 2019.   The current sums invested against the various asset classes were also reviewed against the investment strategy and the need for rebalancing considered.

Debbie Drew introduced the report, and updated the figures set out in paragraph 1.2.  As at 30 June, the Pension Fund investments were valued at £959.4m instead of £962.1m, which is an increase of £40m instead of £50m since the previous quarter.  Compared with the aggregate benchmark of 3.2 per cent the fund increased 3.9 per cent and has outperformed the benchmark by 0.7 per cent in the quarter.  These should also be reflected in the report from Mercer.

Taking the long view, there has been an 8 per cent return over the 30 years since inception, with several changes of strategy.

Given the collapse of Thomas Cook, Councillor Rayner cautioned against over-investment in leisure companies.  Mrs Drew said the Fund’s leisure investments were relatively small and stable, UK based and fairly low-risk.




The Committee noted the report on the overall performance of the Pension Fund as well as that of the individual managers.



Additional documents:



Consideration was given to a report of the Strategic Director of Finance and Governance and Pensions and Treasury Manager, setting out a proposal on the UK equity allocation, update on the LCIV emerging market sub-fund and quarterly monitoring of the fund’s fossil fuel holdings.


Debbie Drew introduced the report and drew Members’ attention to the proposal from Mercer in Appendix 1 to the report, seeking to address the challenges, chiefly, of domestic UK exposure, and also fossil fuel divestment and the impact of collateral.


The Fund has material exposure to the UK equity market (and in particular the domestic market given AXA is the chosen manager) and the increased risk of a no deal Brexit following the change of Prime Minister) means an increased risk of difficult market conditions in the UK.  The manager has underperformed the broad UK market since the 2016 referendum, and is likely to continue underperforming in a ‘no deal’ environment.


AXA have proposed a segregated mandate based on the current UK Select Opportunities fund, without stocks with exposure to fossil fuels.


Mercer were therefore proposing coming out of UK equities as an asset class and to tend towards global equities.  John Raisin advised that the three key factors to consider were the forthcoming actuarial valuation, exposure to equities (global versus UK), and active versus passive management: the preference has always been for active.  The question was therefore, does AXA fit?


Councillor Wheeler believed intuition was a fourth factor.  He acknowledged that AXA had underperformed, but this was because of conditions, and they were tried and trusted.  He warned that pulling out of UK equities altogether was a big decision and should not be taken lightly. Brexit was no longer a new issue. Councillor Hemsted agreed, and said that currency volatility in global markets could leave the Fund exposed, and he pointed, for example, to anxiety about Italy and its impact on the EU.  Councillor Rayner said that Brexit alone should not determine the investment strategy, and referred to the difficulties being experienced by utility companies in EU member states.


Peter Gent commented that Mercer was more concerned by the need for risk management and softening the blow of UK exposure.  The question over AXA has been before the Committee for a while, but as long as Theresa May was Prime Minister, the prospect of a no-deal Brexit was low. Now, or in January, or in March, that probability increases and will produce a sharp shock to the economy.  They were therefore seeking implementation of the proposal before the end of October.  However, it was not the long-term solution but rather a means of spreading risk more evenly across the globe. 


With regard to the questions raised about the European economy, Mr Gent said that the economies of the USA, China, Japan and the risk of trade wars were of greater concern.  He reminded the Committee that the equity protection policy applies to both UK and global equities.


Councillor Rayner said that the Committee had every  ...  view the full minutes text for item 22.