Agenda item

Report of the Director for Corporate Services and Presentation by CEM Benchmarking Limited

The Committee were informed that the Pension Fund takes part in an annual investment benchmarking exercise with an international company CEM Benchmarking Inc. CEM benchmark over 300 pension funds globally, with total assets of £8 trillion.

The Committee considered the results of the 2020/21 CEM benchmarking survey, where Staffordshire was compared on a number of cost and performance metrics to a global peer group of 16 pension funds that had a median size of £6.2bn versus the Pension Fund’s £6.1bn market value, on 31 March 2021.  The Director for Corporate Services indicated that it was important to note that a straightforward comparison of investment returns and costs, as publicly reported by pension funds, would never be meaningful because there were several variables which also needed to be considered to obtain a like for like comparison, e.g., Assets under management, strategic asset allocation, implementation style, benchmarks etc. The survey undertaken by CEM adjusts for these variables and provided more clarity on investment return and cost comparisons for the Pension Fund versus the selected peer group.

The Committee also received a presentation from John Simmonds of CEM and noted the following key points:

(a) Cost -

• The Fund’s investment cost of 51.1 bps was above its benchmark cost of 45.3 bps.

• In aggregate, the Fund had a higher cost implementation style.

• In aggregate, the Fund paid less than peers for similar assets.

(b) Cost trend -

• The Fund’s costs have fallen from 55.8 bps in 2014/15.

• The Fund’s costs have fallen by 4.7 bps since 2014/15 because it was paying less for similar assets.

(c) Returns -

• The Fund’s 7-year net total return was 9.1%. This was above the LGPS median of 8.8%.

• The Fund’s 7-year benchmark return was 9.1%. This was above the LGPS median of 8.5%.

(d) Funding and Risk -

• The Fund’s funding level of 112% on the standard SAB basis in 2019 was the same as the LGPS median of 112%.

• The Fund’s strategic asset allocation suggested that it took more risk relative to its liabilities than LGPS peers.

(e) Value added -

• The Fund’s 7-year net value added was 0.0%. The LGPS median was 0.4% and the global median was 0.3%.

(f) Cost effectiveness / value-for-money

• The Fund’s 7-year performance placed it marginally in the negative value added, high-cost quadrant of the VfM chart.

Cllr Greatorex referred to the under-performance on costs when compared to the Fund’s peer group and enquired as to whether the Fund should move towards investing in more passive assets.  In response, Mr Simmonds indicated that the Staffordshire Fund had been rewarded for investing actively, an example of this was the return on its investment in Private equity.

In response to a question from Cllr Huckfield in respect of looking forward over the next seven years, Mr Simmonds indicated that the Fund was projected to achieve further savings in asset manager fees through Pooling.

RESOLVED – That the report from the Director for Corporate Services and the presentation from CEM Benchmarking UK Ltd (CEM) be noted.