Agenda item

Pension Fund Performance 2016/17

Presentation by Nick Kent from Portfolio Evaluation

Minutes:

The Committee received a presentation by Nick Kent from Portfolio Evaluation Limited (PEL) on the Staffordshire Pension Fund investment performance for 2016/17.

 

The Committee noted the following:

 

For the year ended 31 March 2017 –

·         The Fund achieved a return of 22.9%, out-performing its strategic benchmark by 0.9%.

·         There were high returns across markets generally, due to global economic growth and Brexit and the subsequent Sterling depreciation.

·         The loose monetary policy was good for markets but bad for savers.

·         Quantitative Easing (QE) was beginning to end and should result in increasing bond yields.

·         There were divergent results regionally and between sectors, however there were increasing signs of convergence.

·         Market risk increased in 2016 but had plateaued recently.

 

For Three Years Ended March 2017 -

  • The Fund achieved a return of 11.8% per annum, out-performing its strategic benchmark by 0.1%.
  • There was strong performance from the majority of markets.
  • The depreciation of Sterling was a significant generator of returns.
  • The impact of QE was beneficial from a returns perspective.

 

For five Years Ended March 2017 -

  • The Fund achieved a return of 11.5% per annum, out-performing its strategic benchmark by 0.7%.

 

In summary:

 

·         The Fund had outperformed its strategic benchmark over the one, three and five year periods.

·         Markets had provided high returns over the one, three and five year periods due to, in part, Sterling depreciation, Brexit, global economic growth and QE.

·         Mandates with Sarasin and Aberdeen were terminated in 2016/17  and the assets invested in a Global Equity portfolio and Emerging Markets Equity portfolio managed by LGIM on a passive basis.  Additionally, the DGF portfolios managed by Schroders and Morgan Stanley were terminated. And, a Private Debt portfolio had been seeded.

·         The Fund had underperformed the average for the PEL Local Authority Average but it had less risk than the average.

·         The outperformance in 2016/17 was due to the Private Equity, Property and Bond portfolios outperforming their individual benchmarks.  Equity performance was a drag on excess return primarily due to Sarasin and Aberdeen.  Asset allocation was neutral.

·         Total risk remained low and active risk was at a level which was consistent with the structure of the Fund.  Risk had remained stable over the year.

 

In response to a question from Mr Greatorex relating to how benchmarks were established, Mr Kent indicated that they were based on the relevant market indices.

 

In response to a question from Mr Sutherland in relation to the commodities markets, Mr Kent expressed the view that, if the economy continued to grow, commodities on the whole were likely to do well although oil prices were likely to remain volatile.  He added that Brexit could have an adverse impact on food prices and that it was likely that interest rates would begin to rise.

 

Ms Insull referred to the poor performance of Sarasin and Aberdeen and enquired whether the removal of the Managers, in the context of pooling, had caused any issues for the Fund.  In response, the Director of Finance and Resources indicated that the assets invested by Sarasin and Aberdeen were now invested in a Global Equity portfolio and emerging markets portfolio managed by LGIM on a passive basis pending the appointment by LGPS Central of an active manager, whereas.  ordinarily, a search for new managers would have been conducted immediately.

 

In response to a question from Mr Greatorex about how “churn” in the Fund’s equity portfolio was assessed, Mr Kent indicated that this was examined on a quarterly basis and that a 20% “churn” per annum was considered to be the norm.

 

Mr Adams enquired about what action the Committee may take if they were not in agreement with the decisions taken by the Pensions Panel.  In response, the Director of Strategy, Governance and Change indicated that since it was a matter for the Committee to appoint the Members of the Pensions Panel, the Committee could change that membership if it had any concerns.  He added that the Committee received copies of the minutes of the Panel’s meetings and were therefore kept informed as to the decisions the Panel were making.  The Director of Finance and Resources added that it was also a matter for the Committee to approve the Fund’s Strategic Asset Allocation.

 

RESOLVED – That the presentation on Pension Fund investment performance 2016/17 be noted.