Agenda item

Report of the City Treasurer.

5.1       George Bruce (Tri-Borough Director of Treasury and Pensions) presented the report and informed Members that the Government had published two documents on 25 November 2015, the first on its intention to require Local Government Pension Schemes (LGPS) to form pools of assets of approximately £25 billion, and the second a consultation on draft revised LGPS Management and Investment of Funds Regulations. An initial response from local authorities individually or collectively on pooling had been required by 19 February 2016, and a more detailed response by 15 July 2016. George Bruce drew Members’ attention to the London Collective Investment Vehicle’s (CIV) initial response on behalf of participating London authorities to the pooling proposals. He advised that the London CIV and the Council was working with fund managers in respect of cost structures which may take a few months to complete. Every effort would be made to ensure that the Council’s assets were reflected in the pooling arrangements and a draft detailed response would be put to Members for the next Committee meeting.

5.2       Turning to the Government’s draft revised LGPS Management and Investment of Funds Regulations, George Bruce advised that the Council would be required to have a new Investment Strategy by October 2016, and updates on this matter would be presented at the next two meetings of the Committee. The draft regulations gave the Secretary of State quite substantial powers of intervention if this was felt necessary, however there would be a process of dialogue with local authorities before it was decided whether to use these powers. The Government could also potentially intervene in any other investment related functions as well as pooling and further guidance was awaited on this matter.

5.3       In respect of the London CIV, George Bruce advised that assets in the Allianz diversified growth fund had been transferred to the CIV in December 2015. The planned transferring of Baillie Gifford global equity and diversified growth funds had been delayed whilst Stamp Duty issues were being resolved and it was anticipated that the transfer would take place shortly.

5.4       During Members’ discussions, further details were sought as to when and why the Secretary of State would intervene with a local authority’s investment functions and could this also include concerns about not investing in infrastructure. It was suggested that clearer guidance would be needed on when the Secretary of State could intervene and the steps that would be taken before this course of action was deemed necessary. The Chairman enquired what the expectations in undertaking pooling should be and what asset classes would be involved. He also asked whether there had been any dialogue with the London CIV on the possibility of pooling fixed income assets as there were potential benefits in doing so. The likelihood of whether the frequency of Committee meetings would increase in light of asset pooling and changes to LGPS investment fund regulations proposals was also raised.

5.5       In reply to the issues highlighted by Members, George Bruce advised that the Secretary of State could intervene, for example, if unhappy about the way the pooling was being undertaken or if it was felt that there was insufficient pooling. Potentially there could also be other reasons, such as lack of investment in particular asset classes such as infrastructure. George Bruce advised the July submission to the Government would quantify the benefits from pooling, including expected fee savings and performance improvements, which will assist the Committee when discussing the transfer of assets to the London CIV. He acknowledged that the London CIV had considerable work to complete within a short timescale, however consideration of the CIV’s structure for all asset classes was underway, including fixed income assets. George Bruce envisaged that the Committee would continue to meet on a quarterly basis, although to date the Government had expressed satisfaction with the structure of the London CIV. It was possible that the Government’s views on investment strategies may differ to the Council’s and other local authorities. London boroughs had collaborated through the London CIV in responding to the pooling proposals and the Government’s response was awaited.

5.6       The Committee requested an update on the Investment Strategy and further details on pooling intentions in respect of asset classes including fixed income, property and infrastructure at the next meeting.

5.7       RESOLVED:

            That it be agreed to delegate to the City Treasurer, in consultation with the Chairman of the Pension Fund Committee, the decision to agree to the transition of Pension Fund assets to the London CIV where the Fund has a pre-existing relationship with the investment manager and where the transfer of such assets is financially advantageous to the Fund.