Report of the City Treasurer.
10.1 George Bruce presented the report and advised Members of the findings of the Department for Communities and Local Government’s benchmarking costs exercise. He drew Members’ attention to Table A on the report comparing Local Government Pension Scheme (LGPS) administration fund costs for inner and outer London boroughs, metropolitan authorities, English shire authorities and other English local authorities. George Bruce advised that there was a lack of consistency in what costs local authorities included as there had been an element of self-selection in the process. He felt that Westminster had taken a conservative approach by including more costs than a number of other local authorities. However, Westminster’s administration and governance costs represented £38.98 per member, which compared well with the inner London average of £42.50. Westminster’s fund management costs represented £328 per member, higher than the inner London average of £206. This was mainly attributable to performance related payments to one of the fund managers, Majedie.
10.2 George Bruce then referred to the findings of the CEM benchmarking costs exercise in the report. The benchmarking exercise had shown that Westminster’s total investment cost was 50.8 bps, equating to £5,329k, above the global median of 49.2 bps, the equivalent of £5,161k. George Bruce advised that CEM calculates a benchmark cost for each fund which takes into account the differences in total costs due to the fund’s size and asset mix. Westminster’s benchmark cost was 49.9 bps (£5,234k) which when compared to its total investment costs meant that it had incurred an excess cost of just 0.9 bps (£94k). However, George Bruce advised that the Fund’s costs and fees would fall as more assets were transferred to the London CIV.
10.3 During discussion, Members asked if there were any disadvantages in participating in the London CIV. The Chairman welcomed the prospect that CEM benchmarking would be able to provide a peer-based benchmarking report on costs and performance, albeit at an additional cost. He enquired whether data for transactional costs across a number of LGPS funds spanning a few years could be provided for the Board to consider at a future meeting.
10.4 In reply to Members’ queries, George Bruce stated that one disadvantage of participating in the London CIV was the loss of choice in selecting fund managers. However, whilst the London CIV would monitor the fund managers, there was a grey area in terms of whether individual funds’ pension fund committees and pension boards could also monitor fund managers, who may claim that they are only accountable to the London CIV. In respect of CEM providing a peer-based benchmarking report on costs and performance, George Bruce advised that the LGPS was considering a collaborative tender to keep the costs of the benchmarking exercise down. Members noted that transactional costs were not available on an individual fund basis. However, George Bruce added that fund managers were supposed to record their annual fees and so it was possible that the Westminster Fund’s fees could be compared with the fund managers’ fees. He further advised that new data from the Department of Communities and Local Government would become available which could help furnish information in a report on transactional fees. Nikki Parsons added that the London CIV was also considering a acquiring similar type of peer reporting to that offered by CEM.
1. That the contents of the report be noted.
2. That it be agreed that benchmarked cost analysis be presented annually.