Hounslow Council


Agenda, decisions and minutes

Venue: Committee Room 3, Civic Centre, Lampton Road, Hounslow. View directions

Contact: Carol Stiles Tel. 020 8583 2066 or email:  carol.stiles@hounslow.gov.uk 

Items
No. Item

1.

Apologies for absence, declarations of interest or any other communications from Members

Decision:

Apologies had been received from Jackie Willis, Employer Representative. All other members were present.

 

There were no other communications or declarations of interest.

 

The Chair welcomed Councillor Sam Hearn and Mr William Cassell, members of the Pension Board, as observers to the meeting.

Minutes:

Apologies had been received from Jackie Willis, Employer Representative. All other members were present.

 

There were no other communications or declarations of interest.

 

The Chair welcomed Councillor Sam Hearn and Mr William Cassell, members of the Pension Board, as observers to the meeting.

2.

Risk Register - Report and Appendix - Report by the Head of Treasury, Pensions and Capital pdf icon PDF 164 KB

Additional documents:

Decision:

Resolved:

 

That the Pension Fund Panel approved the six monthly monitoring of the Risk Register.

Minutes:

See the report of the Head of Treasury, Pensions and Capital – Agenda Item 2.

 

Lorelei Watson, Head of Treasury, Pensions and Capital, introduced the report. This was the six monthly monitoring report of the Risk Register. The methodology used was that of Zurich, in accordance with the Corporate Risk Register. Ms Watson drew attention to a range of risks for Administration and on the Client Side. There was one new risk to highlight; this was the Central Government requirement for Local Government Pension Funds to pool assets. This was a funding risk as a decline in assets could have a catastrophic impact.

 

The Panel were informed that the scores for the risks had not changed. In relation to the new risk added, the Chancellor’s Autumn Statement set out the direction of travel and a requirement to pool liquid assets by 2018. This led to a risk that assets could decline and fees increase.

 

It was noted that the question of pooling would be discussed more fully at a later agenda item. However, Councillor Surinder Purewal expressed concern that transactional costs could be colossal and the result might be well performing authorities supporting those performing less well. Lorelei Watson clarified that that they would not pool liabilities but there might be transition costs. There might be the opportunity to transfer in specie or to sell but in either circumstance pooling was a potential risk for the Fund.

 

The Chair informed the Panel that at the recent Local Authorities Pension Fund Forum (LAPFF) Annual Conference all authorities were looking for partners. There were a number of scenarios presented. The Autumn Statement had referred to the potential size and number of the pooled funds but it was likely to depend on Central Government how many pooled funds were created. The Chair also noted the billions of liabilities involved in the pooling of funds.

 

In summing up, Lorelei Watson drew members’ attention to the matrix at paragraph 4.5 of the report. There were no ‘red’ risks. The highest risks were numbers 6,7,8 and 15 – all financial risks. Appendix 1 of the report was the full register. The Panel were asked to approve the report.

 

Councillor Shantanu Rajawat moved the recommendation of the report. This was seconded by Councillor Guy Lambert and agreed.

 

Resolved:

 

That the Pension Fund Panel approved the six monthly monitoring of the Risk Register.

3.

Corporate Governance - Annual Report of Voting - Report by the Head of Treasury, Pensions and Capital pdf icon PDF 200 KB

Decision:

Resolved:

 

That the Pension Fund Panel:

 

1.     Noted the overall voting outcome for all votes cast for the period October 2014 to September 2015.

2.     Approved the decision to extend the current contract for a further 2 years as per the contract option.

Minutes:

See the report by the Head of Treasury, Pensions and Capital – Agenda Item 3.

 

Rapinder Sangha, Strategic Pensions and Treasury Accountant, introduced the report which showed the Fund’s voting record over the year. She explained that the Fund employed PIRC to monitor the voting pattern. They worked to a voting template developed for the Fund to ensure compliance with governance principles. The Fund voted at all Annual General Meetings (AGMs) of companies in which they invested and encouraged companies to be more transparent in respect of governance.

 

PIRC monitored resolutions related to the Board, the Directors, remuneration packages, the relationship with shareholders and other issues. Companies must comply with the regulations or explain why they had not.

 

The report also asked the Panel for a decision on extending the contract with PIRC. In considering this, they were advised that PIRC offered excellent service and were cheaper than the previous provider.

 

The report looked at geographical regions in respect of voting patterns. Table 3 of the report set out the areas of resolutions on which the Fund had exercised its vote. The Fund had voted at 156 meetings. Overall the Fund had voted to approve around 70% of resolutions. The Fund had voted against in instances where there were concerns about remuneration, appointments and Board structure. With regard to Board structure, it was expected that half the Board would be independent Directors to fulfil a scrutiny role and that there should be a division of roles between the Chair and the Chief Executive. Over 90% of companies complied with most of the recommendations.

 

The other area the Fund was most likely to vote against was that of remunerations, for example excessive pay compared with average salaries which was not linked to the long term success of the company. This arose most often with very large companies because excessive salaries were not linked to performance.

 

A further area which the Fund might vote against a resolution was that of Audit. There should be a tender every three years to ensure the independence of the auditors. There was also the question of fees, to check that the non- audit fees did not exceed the audit fees. 

 

These were the type of areas that PIRC would work with the companies to seek increased compliance.

 

Councillor Surinder Purewal referred to paragraph 4.5 of the report. He asked whether the authority was consulted where there were votes against resolutions. Rapinder Sangha explained that the authority had designed a template used by PIRC which enabled PIRC to assess and analyse whether the governance principles applied and whether to vote for or against.

 

Councillor Shantanu Rajawat referred to the financial details and asked about benchmarking over two years against the market. Rapinder Sangha explained that officers had looked at the market and the costs were competitive.  Councillor Rajawat noted that the fees had increased and asked whether there was a discount for loyalty. It was explained that the increase represented inflation. Also time had been invested in  ...  view the full minutes text for item 3.

4.

Quarterly overview and general matters report - Report by the Head of Treasury, Pensions and Capital pdf icon PDF 321 KB

Decision:

Resolved:

 

That the Pension Fund Panel agreed the following:

 

1.     Members noted the report.

2.     Members agreed to support the strategic resilience resolution for Rio Tinto as set out in Paragraph 8.3 of the report.

3.     Members agreed to delegate support for climate change resolutions to the Chair of the Pension Fund Panel but with the understanding that the Chair would keep members appraised of such decisions.

4.     Members agreed that the February submission in respect of the Government proposals from the Autumn Statement – ‘LGPS: Opportunities for collaboration, cost savings and efficiencies’- should be delegated to the Chair and the Director of Finance and Corporate Services, and is circulated to Panel members.

Minutes:

See the report by the Head of Treasury, Pensions and Capital – Agenda Item 4.

 

Lorelei Watson, Head of Treasury, Pensions and Capital, introduced the report. This updated the Panel on a number of issues.

 

The Panel noted that the current value of the fund was £767 million. This was 3% higher than a year ago.

 

In respect of the Class Action against Royal Bank of Scotland (RBS), the trial date had been set for 6 March 2017. The lawyers had said that there were no material differences to the prospect of success or otherwise.

 

With regard to the Pension Board, Stephen Williams, Head of Human Resources, had been appointed as the new Employer Representative. Ms Watson also reported that over 300 people had attended the Pension Fund AGM which was a very good level of attendance.

 

The London Collective Investment Vehicle (CIV) had now set up two active funds but these did not match the Hounslow investment mandate so Hounslow would not participate in the first tranche of investment through the CIV.

 

Paragraph 8 of the report set out details for climate change resolutions in respect of Rio Tinto. Paragraph 8.2 set out the special resolution to be considered by the Rio Tinto AGM in April 2016. This was comparable to the resolutions put to the Shell and BP AGMs. It asked for additional reporting in respect of environmental issues. Members were asked to consider whether they supported the strategic resilience resolution for Rio Tinto.

 

Related to this resolution, and set out in paragraph 9 of the report, was an implementation policy for dealing with such resolutions as they would often be notified between Panel meetings. The Panel was asked to consider the option of delegating decisions on how to approach such resolutions to the Chair or consulting on all such resolutions with all members between meetings and, if so, determining whether they wished to act on a majority or unanimous view.

 

With regard to the Rio Tinto resolution, Mike Smith, Staff Representative, hoped that the Panel would support the resolution. In respect of the delegation between meetings, he recognised the need for a pragmatic approach but hoped that the delegation would be with a mandate which set out the sort of approach the Panel would wish to take.

 

The Chair noted in this case that he had circulated a message to members, excluding the non- voting members. He had received only a couple of responses so had brought the matter to this meeting formally as the timing allowed for that. There were issues about deadlines but it was accepted that there was a general assumption that the Panel would be in favour of resolutions which supported accountability.

 

Section 3 of the report focused on the implications of the Chancellor’s Autumn Statement with regard to the Government’s aim for local authorities to pool investments to reduce costs. The authority had to submit a proposal. There were four criteria to consider – appropriate asset pools, governance and decision making, the  ...  view the full minutes text for item 4.

5.

Exclusion of Press and Public

To resolve that the public and press be asked to leave the meeting during discussion of the remaining items of business because exempt information as defined in Paragraph 3 of Part I of Schedule 12A of the Local Government Act 1972 is likely to be made known.

 

Please note that members of the public and press must leave the meeting at this point.

Decision:

Resolved:

 

That the public and press be asked to leave the meeting during discussion of the remaining items of business because exempt information as defined in Paragraph 3 of Part I of Schedule 12A of the Local Government Act 1972 is likely to be made known.

 

 

Minutes:

 

The resolution to exclude press and public was moved by Councillor Rajawat and agreed.

 

Resolved:

 

That the public and press be asked to leave the meeting during discussion of the remaining items of business because exempt information as defined in Paragraph 3 of Part I of Schedule 12A of the Local Government Act 1972 is likely to be made known.

 

 

6.

Confidential Minutes of the meeting held on 28 September 2015

Decision:

The confidential minutes of the meeting held on 28 September 2015 were agreed, subject to one amendment:

 

Item 7: Quarterly Report, page 35, paragraph 11, sentence 3- amend to read ‘ when the markets returned to the fundamental evaluation.’

 

 

Minutes:

The confidential minutes of the meeting held on 28 September 2015 were agreed, subject to one amendment:

 

Item 7: Quarterly Report, page 35, paragraph 11, sentence 3- amend to read ‘ when the markets returned to the fundamental evaluation.’

 

 

7.

Quarterly Report - Joint Report of the Head of Treasury, Pensions and Capital and Allenbridge Epic

Decision:

Resolved:

 

That the Panel noted the report.

Minutes:

Reference the confidential Quarterly joint report by the Head of Treasury, Pensions and Capital and Allenbridge Epic – Agenda Item 7.

 

The Chair requested colour copies of the report in the future for ease of reference.

 

Karen Shackleton, Investment Adviser, introduced the report which set out a summary of the performance of the Fund and an analysis of the investments for the three months ending 30 September 2015. The report highlighted areas of concern and risk. In particular it was noted that performance of the Hounslow Fund over three years was behind the benchmark. This was primarily due to the poor performance of some elements of the equities portfolio and problems experienced with the performance of the portfolio of one Fund Manager being below benchmark over a period of time. Other asset classes such as the property funds had performed well.

 

The Panel discussed and explored issues arising from the performance analysis.    

 

The Panel had undertaken a strategic review as a result of ongoing concerns about certain aspects of the current portfolio’s performance. Proposals from the review to address the performance concerns would be considered at Item 9 of the agenda.

 

Resolved:

 

That the Panel noted the report.

8.

Presentation by BlackRock

Copies of the presentation are included with the agenda pack for members only.

Decision:

Resolved:

 

That the Panel noted the presentation by BlackRock.

 

Minutes:

Reference the confidential presentation by BlackRock – Agenda Item 8.

 

Imran Sattar, UK Equities Portfolio Manager, and Simon Betteley, from Actuaries Local Authorities team, attended from BlackRock. Chris Head, Relationship Manager, had sent apologies as he was unwell. The Chair introduced the Panel members, the observers from the Pension Board who were there to scrutinise the Panel, officers and the Investment Adviser.

 

BlackRock had provided members with copies of a presentation on performance of the portfolio, focusing in particular on performance up to the end of Quarter 3, 30 September 2015.

 

Market returns over the last 12 months had been volatile. There had been a change in the policy of central banks with policy now diverging in different countries. However, volatile movement provided opportunities.

 

The UK equities portfolio had performed well over this period and Mr Sattar explained the difficulties of the market and the types of companies which were doing well despite the difficult macro-economic environment. He focused on specific companies that he considered would perform well because they were able to deliver profit growth or had strong structural growth with a large market share of a particular service. He pointed out that the mining and oil sector had not performed well in the current market and the Hounslow portfolio had benefited from being underweight in those sectors.

 

The Chair thanked the BlackRock representatives for their attendance, wished them a safe journey home and Chris Head a speedy recovery.

 

Resolved:

 

That the Panel noted the presentation by BlackRock.

 

 

The Chair adjourned the meeting at the end of this item for a brief break between 9.00 p.m. and 9.10 p.m.

 

9.

Investment Strategy - Multi Asset Income Fund - Report by the Head of Treasury, Pensions and Capital

Decision:

Resolved:

 

That the Pension Fund Panel agreed the recommendations of the report.

 

Minutes:

Reference the confidential report by the Head of Treasury, Pensions and Capital – Agenda Item  9.

 

The Panel moved suspension of standing orders at 9.30 p.m. to continue the meeting.

 

The Panel had undertaken a strategic review of its investment strategy because of ongoing concerns about the level of performance and the Fund’s future cash flow. The report set out three potential solutions, not all of which would address both issues. The recommended solution was the transfer of some assets to a Multi-Asset Income Fund. There would need to be a full procurement exercise to identify and appoint a suitable Fund Manager.  

 

The Panel discussed the options. There were different views expressed about the most appropriate solution but the Panel agreed to proceed with the process to appoint a Multi-Asset Income Fund Manager.

 

Resolved:

 

That the Pension Fund Panel agreed the recommendations of the report to take the necessary steps to appoint a Multi-Asset Income Fund.

 

10.

Half Yearly Administration Monitoring - Report of the Strategic Pensions Manager

Decision:

Resolved:

 

1.     That the Pension Fund Panel noted the performance of Capital Employee Benefits, as pension administrators, for the period April 2015 to October 2015.

2.     That clarification would be given outside the meeting of the reasons behind the increase in members of the Fund.

3.     That the next update to the Panel should include a list of the employers within the Fund and admission dates so members could identify new employers.

Minutes:

Reference the confidential report of the Strategic Pensions Manager – Agenda Item 10.

 

Hitesh Sharma, Strategic Pensions Manager, introduced the report which detailed the performance of Capita Employee Benefits in the administration of the pension scheme from April to October 2015. This was a regular update report to the Panel.

 

There had been concerns about the performance against the Service Level Agreement standards in 2014/15 but performance over the period under report had improved.

 

The Panel noted that there had been an increase in the members of the Fund and wished to be clear about the reasons for this. The Panel also felt that it would be helpful for the next update report to list the employers within the Fund and admission dates, as there were a number of new employers.

 

Resolved:

 

1.     That the Pension Fund Panel noted the performance of Capita Employee Benefits, as pension administrators, for the period April 2015 to October 2015.

2.     That clarification would be given outside the meeting of the reasons behind the increase in members of the Fund.

3.     That the next update to the Panel should include a list of the employers within the Fund and admission dates so members could identify new employers.

11.

Service Improvement plan - Report of the Strategic Pensions Manager

Decision:

Resolved:

 

That the Pension Fund Panel noted the progress being made with regards to the Service Improvement Plan between Capita Employee Benefits and the London Borough of Hounslow.

Minutes:

Reference the confidential report of the Strategic Pensions Manager – Agenda Item 11.

 

Hitesh Sharma, Strategic Pensions Manager, introduced the report which set out details of a Service Improvement Plan agreed with Capita Employee Benefits which provided a number of enhancements to the service. A key feature of the enhancements was the relaunch of the pensions website which had been highlighted at the Pension Fund Annual General Meeting and was due to launch in the New Year.

 

Resolved:

 

That the Pension Fund Panel noted the progress being made with regards to the Service Improvement Plan between Capita Employee Benefits and the London Borough of Hounslow.

12.

Half Year Monitoring of Private Equity - Report by the Treasury Management Officer

Decision:

Resolved:

 

That the Pension Fund Panel noted the performance of the Fund’s private equity investments.

Minutes:

Reference the confidential report by the Treasury Management Officer – Agenda Item 12.

 

Mike Rust, Treasury Management Officer, introduced the report which was a regular update to the Panel on the performance of the private equity portfolio. It was noted that this portfolio had been established originally to provide some diversification in the overall investment portfolio. However, subsequently the Fund had alternative diversification through investment in Diversified Growth Funds so the private equity portfolio was now being run down as private equity funds within the portfolio reached maturity.

 

Resolved:

 

That the Pension Fund Panel noted the performance of the Fund’s private equity investments.

13.

Award of Actuary Contract - Report by the Head of Treasury, Pensions and Capital

Decision:

Resolved:

 

That the Pension Fund Panel agreed to award the contract for the actuary for a period of four years from 1 January 2016 to 31 December 2020.

Minutes:

Reference the confidential report of the Head of Treasury, Pensions and Capital – Agenda Item 13.

 

Lorelei Watson, Head of Treasury, Pensions and Capital, introduced the report. A tendering exercise had been undertaken to award the contract for actuarial services from January 2016 for four years. The current actuary, Barnett Waddington had scored highest in the tendering exercise and it was proposed to award the contract to them. This was agreed by the Panel.

 

 

Resolved:

 

That the Pension Fund Panel agreed to award the contract for the actuary for a period of four years from 1 January 2016 to 31 December 2020.

14.

Urgent Business

Any business which the Chair agrees to accept on grounds of urgency.

Decision:

The Chair advised that he had been invited to apply to be a member of the Executive of the LAPF. Members approved the application being submitted.

Minutes:

The Chair advised that he had been invited to apply to be a member of the Executive of the Local Authorities Pension Fund Forum (LAPFF). Members approved the application being submitted.

15.

Date of next meeting - 24 March 2016

Decision:

The next meeting was scheduled for 24 March 2016.

Minutes:

The next meeting was scheduled for 24 March 2016.

 

In closing the meeting the Chair wished everyone a Happy Christmas and New Year. He thanked members, officers and the Investment Adviser for all their efforts. He also thanked the members of the Pension Board for their attendance. He had attended the first meeting of the Board and looked forward to attending again in the new year.