Agenda item
WM Annual Review of Pension Fund Performance 2013/14
To receive a presentation from WM Company.
Minutes:
Lyn Coventry of World Markets (WM) presented the Performance Review of Tower Hamlets and informed the Committee about the work of World Markets. The purpose of the report was to give the Committee an insight into;
· economic and market environments
· in comparison to other local authorities funds which are monitored through this company
The key points covered in the report were;
· The national picture- in respect of performances of equities, bonds, alternatives and property markets in the short and medium terms.
· Average returns between 2013-14 (Section 1 pages 26-30 of agenda pack)
· Total Fund performance against Strategic Benchmark (Section 2 pages 31-34 of agenda pack)
· Performance of Fund Managers (Section 3 pages 34-35 of agenda pack)
· The Committee were informed that the pacific and emerging markets generated negative returns. The global financial crisis had made an impact with nine percent of returns over the past 5 years.
· The representative from World Markets informed the Committee that volatility rates are lower with bonds as they more consistent and provide greater returns- Only in 3 years had there been negative returns from bonds.
Asset Allocation
· With regards to Asset Allocation the Committee were told from end of March 2014, corporate pension funds were closed to new members, but local government fund is different to this.
· The UK was down thirty six percent on equity allocation.
· There has been no major change with regard to bonds. Government bonds were main asset class but corporate bonds stand for 2/3 of investments
· More money has been put into diversified funds
· The Committee were made aware that long term risk investments generated greater returns. An example of this was equities, although it has higher volatility rates, it gave higher returns than low risk investments.
Tower Hamlets Pension Fund
· The Committee were informed that there has been 1.6% return-more than last year, surpassing the benchmark.
· The fund outperformed the benchmark over the latest year for the first time in 8 years and only the second time in the last decade
· The Committee were told that longer term stock selection has been unfavourable. This was due mainly to below benchmark returns in the UK equities.
· Relative risk is low compared to other Funds within the local authority universe- The World Markets representative informed the Committee that over the course of five years LBTH has not performed in accordance with the benchmark
In response to Members’ questions, the following information was provided:
· Concerning long term Manager performance and low percentile, the Committee were informed by the World Market’s representative that the low percentile was due to having a UK equity Manager which was not performing well, which explained the low returns.
· Concerning investment in the Pacific region and whether it was possible to invest elsewhere, where the authority would get higher returns, the Committee were informed that it is important to have a long term strategy in place and ensure that it is at a level of risk that the authority is comfortable with as this has proven to be beneficial. The Investment and Treasury Manager informed the Committee that the Fund is running on low risk due to the current set up. The Committee were also told that the way in which the authority has exposure to oversee markets is in line with global equity markets.
· Concerning whether some comparative figures of targets and performance achieved, could be provided/made available to the committee, Members were informed that this kind of figure should be the actuarial target. They were also advised that the ‘performance aimed for’ constitutes the ‘target’ and could be either in-line with the market or relative to it this. This ‘target’ therefore becomes the benchmark. The committee was informed that, while there was no established comparative reporting against other London authorities, the Fund had performed better than average in relation to other London boroughs monitored by WM Company.
· The Committee was recommended to establish a benchmark strategy and that this should be set at a level of risk that the Council was prepared to accept.
· Concerning whether there were any possible effects arising from the forthcoming referendum on Scottish independence, the committee was informed that financial markets dislike uncertainty and therefore a short term impact could be expected; especially in relation to equities markets. However it was harder to anticipate what the effect would be on bond markets.
In managing and directing investment of the Fund, members were asked not only to consider investment returns but at the same time also to consider the effects of liabilities on returns since pension funds were compromised of two aspects ‘returns and liabilities’. Mr Haynes noted that the Fund strategy for the longer term had been to keep as low as a risk as possible that enabled returns to be achieved. Additionally members were recommended to consider the potential consequences of poor returns and what would be the Council's role/duty in such an event.
Councillor Harrisson asked that paper be brought to the next meeting to discuss how the investment strategy could be changed or influenced by the Committee.
RESOLVED
That the report be noted.
Action by:
C Holmes- Acting Corporate Director of Resources
Supporting documents: