Agenda item

Report of the City Treasurer.

5.1       George Bruce (Tri-Borough Director of Treasury and Pensions) presented the report and advised that the Government was largely satisfied with the London Collective Investment Vehicle’s (CIV) response to its pooling criteria, however further information on infrastructure investments and fees savings were requested for the London CIV’s detailed response required by 15^th July. He confirmed that the proposed transfer of the Westminster Pension Fund’s Baillie Gifford assets to the London CIV had been completed on 18^th April 2016, following the agreement of the City Treasurer in consultation with the Chairman of the Committee. George Bruce envisaged that most of the transferring of assets from the Fund to the London CIV would take place during 2016 to 2020. He then drew Members’ attention to Westminster City Council’s specific response to the Government’s criteria for pooling of assets and sought the Committee’s approval.

5.2       During Members’ discussions, clarification was sought as to whether all assets, including examples such as real estate, would need to be included under the London CIV, and if so, within what timelines. A further explanation was sought in respect of the Fund’s costs submitted in response to the CEM benchmarking exercise and how these compared nationally. A Member commented on the need for caution in investing in infrastructure, particularly in respect of green sites. The Committee queried why the transfer of the Fund’s passive equity investments with Legal and General Investment Management (LGIM) to the London CIV had been delayed from June 2016 to a likely date in September 2016. Councillor Ian Rowley advised Members that there was a useful article entitled “Survival of the unfittest: why the worst infrastructure gets built” in the Oxford Review of Economic Policy on the risks associated in investing in infrastructure and he would circulate this to the Committee and officers.

5.3       In reply to the issues raised by Members, George Bruce anticipated that all assets were likely to be transferred from the Fund to the London CIV at some stage and it was expected that the CIV would consist of around 40-45 mandates from a range of assets. He advised that four real estate mandates were expected to be included within the London CIV structure. George Bruce stated that it was expected that most of the Fund’s assets would be transferred to the London CIV by 2020, however there was no legal requirement that this be undertaken and by this time. The Government had issued criteria by which assets did not need to be pooled, and such examples may include situations where it could be demonstrated that pooling such assets would bring more costs, and real estate assets where a strategic case could be made for them to held within the Fund. However, the revised Local Government Pension Scheme (LGPS) Management and Investment of Fund Regulations gave the Government powers to intervene and require that assets be pooled if it thought this was the appropriate action to take. George Bruce anticipated that local authorities would undertake the majority of transferring to their respective pooled vehicles between now and 2020 and most assets would be pooled by 2022. It was not clear how the Government would respond to a Fund failing to pool assets until such a situation arose. George Bruce advised that there was no current allocation of assets in infrastructure for the Fund, however a target allocation of 5% for this class had been set in the Fund’s Statement of Investment Principles.

5.4       In respect of the CEM benchmarking exercise, George Bruce advised that broadly Funds were structured in a similar way, however the Government was still seeking further standardisation. The Westminster Pension Fund’s costs were slightly below the national average in 2013, however they were marginally above in 2015 and this could mainly be attributed to performance fees for Majedie equity fund managers who had achieved higher returns for the Fund. In response to a further query from Members, George Bruce stated the figures that would be made publically available would be the CIVs estimated costs savings from pooling. He acknowledged the risks highlighted by Members in investing in infrastructure and the Government had accepted local authorities’ rights to determine the level of investing in infrastructure assets, however it would continue to encourage such investments. George Bruce advised that the transfer of LGIM assets to the London CIV had been delayed whilst stamp duty and other tax implications were being addressed.

5.5       The Chairman concluded discussions on this item by emphasising that investing in infrastructure assets would only take place where it was seen to be beneficial to the Fund and was in line with its Statement of Investment Principles and he reiterated the Committee’s concerns in investing in greenfield sites and the need to exercise caution in this area.

5.6       RESOLVED:

            That the Westminster specific response as set out in Appendix 2 of the report be agreed for submission to the Government in July 2016.