Report of the City Treasurer.
5.1 Peter Carpenter (Interim Tri-Borough Director of Treasury and Pensions) presented the report and stated that the Investment Strategy Statement (ISS) was one of the areas that had been identified by the Board to be scrutinised. Peter Carpenter advised that the ISS, which set out the Council’s policy on ethical, social and corporate governance issues for both its own investments and those being managed through the London CIV, had replaced the Statement of Investment Principles. A draft ISS had been provided by the Pension Fund’s actuary and the same draft had been issued to the other tri-boroughs, who also used the same actuary, to ensure standardisation. Members noted that around 70% of the Fund’s assets would be under the CIV by the end of June.
5.2 Peter Carpenter advised that the advantages of having assets under the London CIV included the ability of the CIV to monitor assets on a daily basis, as well as having more resources to look at governance and voting issues. Peter Carpenter stated that every effort was being made to ensure that all 33 local authority members were in agreement in working closely together, and Westminster, as well as other boroughs such as Wandsworth, were well advanced in transferring assets to the CIV. There was a concern that the Government would want to use Funds for infrastructure in future and so it was important that the local authorities within the CIV worked closely together to enhance the level of engagement with both external managers and the underlying companies in which the CIV invests.
5.3 During Members’ discussions, further information was asked in respect of the London CIV increasing its number of staff. A Member referred to voting rights being delegated to the CIV and commented that there may be some instances where this could potentially work against the interest of the Westminster Fund, such as determining the salary of a CIV Executive Director. He also asked how and when CIV voting would be reported back to the Pension Fund Committee and the Board. Members enquired when CIV reports would be made available to the Pension Fund Committee and the Board.
5.4 Members then considered the ISS. It was asked when the £178m of assets already transferred from the Fund to the CIV had taken place. Questions were raised as to whether it was appropriate that the Pension Fund Committee delegates social, environmental and ethical policy to the investment managers. It was also queried whether it was prudent to incorporate a report on voting activity as part of the Pension Fund annual report. Another Member commented that it was desirable as it provided transparency.
5.5 In reply to issues raised by Members, Peter Carpenter advised that the London CIV was making active attempts to recruit additional staff, including placing advertisements with London Councils. Each participating London borough would be contributing an additional £75k to the CIV this year. Members were informed that all of the Westminster Fund’s equities assets would be under the CIV and this was the case for the other two tri-boroughs. Peter Carpenter advised that the Council retained the right of veto for instance in voting for a fund manager and had the power to terminate the agreement with a fund manager if it felt necessary to do so. However, overall the Fund would be stronger under the CIV and the Council rarely voted against CIV motions. Peter Carpenter advised that the Board would be receiving some CIV reports on the performance of assets and also in respect of voting and environmental, social and governance issues in future.
5.6 Peter Carpenter undertook to confirm when £178m of assets was transferred from the Fund to the CIV. Peter Carpenter advised that it had been the Fund’s policy to delegate social, environmental and ethical policy to the investment managers in the last few years and that this only applied to assets in the Westminster Fund and not those in the CIV. A breakdown of individual votes would be included in the Pension Fund annual report.
5.7 Members then considered the ISS and suggested some amendments as set out below:
· Page 1 of the ISS, section 1.3, 4th line, add “and guarantors of other scheme employers” be added after “council tax payers”
· Page 4, section 2.4, third paragraph, 1st line, replace “takes the view” with “seeks to ensure” and replace “in” with “are” in the 2nd line
· Page 6, section 4.9, 3rd line, replace “contributions” with “liabilities”
· Page 7, section 6.1, last line, add “the London CIV’s” before “principles.”
5.8 The Chairman emphasised the importance of both the Pension Fund Committee and the Board in keeping a close eye on ensuring that the external investment managers were undertaking appropriate monitoring of investments, including in respect of environmental, social and governance issues. He requested that a report providing an update on the ISS be presented at a future meeting.