Agenda item
PRESENTATION FROM PIRC ON LOCAL AUTHORITY INVESTMENTS LEAGUE TABLE
- Meeting of Pension Board, Monday, 16th October, 2017 10.00 a.m. (Item 7.)
- View the background to item 7.
Minutes:
The Board received a presentation from David Cullinan of Pensions & Investment Research Consultants Ltd (PIRC), on the Annual Performance Review of the Tower Hamlets Pension Fund. PIRC is an independent corporate governance and shareholder advisory consultancy that has over 30 years’ experience in their field and currently provides a service to 51 Funds which have a market value of over £160 Billion. PIRC has a diverse client base which comprises of large pensions funds and asset managers, trade unions and other responsible investors. The Committee during a question and answer session: Noted
• There were excellent returns for funds’ asset between 2016 / 2017. All major asset classes delivered positive returns; this return was driven by strong equity performance. The above would have led to Funding levels being improved. The alternative asset performance is healthy but mixed.
• There was a notable move from traditional equities and bonds.
• For Equities, all markets delivered significant doubly digit returns; however the domestic equities were weaker when compared to their overseas counterparts. This was bolstered by the weakness of sterling. Equities have driven the excellent long term performance of the LGPS.
• Members commented on the relationship between the value of sterling and performance of equites and questioned whether any loses had occurred with Funds that had employed ‘hedging’. The Board was advised that ‘hedging’ which had occurred before Brexit would have encountered losses and reminded that Sterling had picked up since the Referendum. The Board was advised that currency hedging was good opportunity to ‘lock funds’ and that ‘Active Currency’ had risen in popularity.
• Bonds returns have been positive in particular those which where index linked; Absolute return strategies lagged by some margin.
• Performance of Alternatives were strong but mixed; Private equity in aggregate performed best and diversified growth strategies outperformed benchmarks but lagged other assets.
• Only six of the last thirty years have produced negative returns; these periods are often followed by strong growth. The thirty year return averages close to 9% p.a. this is a real return of 6% p.a.
• Members commented about the long term performance and noted there had been a long sustained period of positive returns and questioned whether this will remain. There are number of factors which may have an effect on the future returns; these include US Election, Brexit, domestic market and changes to interest rates.
• Long term alternative asset performance benefited the large funds who were early investors in private equity.
• Alternative asset exposure has increased. There has been changes at asset class level which include; domestic to global equity, Gilt to alternative credit sources and Hedge funds to more transparent alternative strategies. Members were advised that two thirds of Funds have moved from domestic to international.
• Member commented that there were little changes with Equity and was advised that a large portion of this class was held in cash. During the past ten to fifteenth years there was a lack of complexity in this class; however it is now well diversified but still not overly complicated. This Asset is close to its benchmark.
• Schroders UK performance over the past year has been limited; the property mandate has performed well.
• Members raised questions about moving out of asset class and why strong mandates churn. The Board was advised that performance was dependent on performing managers and the Managers selection process. Poor performing manager are dispensed by Funds. There has been over 30 years of testing of performance managers; there is uncertainty if they are pooled. Members noted that they could review decisions made about the Fund and this include performance managers.
• Strong performance by Baillie Gifford and Ruffer were offset by the high cash weighting yield at the start of the year. GMO failed to add value over any of the long term period.
• The Fund bettered its benchmark in the latest year by a sizeable margin. It has tracked broadly in line with benchmark medium term but lagged longer term. The Fund fell short of the LGPS average however returns have consistently outpaced the important measure of inflation by a substantial margin. Over the last ten years the Fund had an average level of volatility but delivered a below average return; this has continued over the last five years.
• The Fund has performed below its peers over the past 20 year period
• Members commented about the Funds’ Performance over the past 20years and agreed that returns could be better and requested that Officers provide information about past trends.
• The Fund enjoyed an excellent 2016/17 both in absolute and relative terms versus the benchmark. Importantly, performance over all meaningful timeframes has outpaced inflation and actuarial assumptions for asset growth.
Members thanked David for his presentation and requested that the Annual Performance Review of the Tower Hamlets Pension Fund be included in their Work Plan.
Supporting documents: