Agenda item

This report provided information for employers, members of London Borough of Barking and Dagenham Pension Fund (“the Fund”) and other interested parties on how the Fund had performed during the quarter 1 July 2016 to 30 September 2016 (“Quarter 3”). The report updated the Panel on the Fund’s investment strategy and its investment performance. Due to the technical nature of this report, Appendix 2 provided a definition of terms used in this report and Appendix 3 set out roles and responsibilities of the parties referred to throughout this report.

The Fund’s externally managed assets closed Quarter 3 valued at £844.2m, an increase of £53.4m from its value of £790.8m as at 30 June 2016. The cash value held by the Council as at 31 March 2016 was £19.6m giving a total Fund value of £863.8m.

For Quarter 3 the Fund returned 5.3%, net of manager and custodian fees, outperforming its benchmark return of 4.4% by 0.9%. Over one year the Fund returned 17.4%, outperforming its benchmark of 16.6% by 0.8%. Over three years the Fund trails its benchmark by 0.7%, providing a return of 9.4, which exceeds the actuarial return target for the fund of 4.7%.

The Fund’s 2014, 2015 and Q3 2016 quarterly returns, its 1, 2, 3 and year returns were provided in table 1 to the report.

A verbal update on the unaudited performance of the Fund for the period 1 October to 12 December 2016 was provided to Members at the Pension Panel.

The GMPT advised that in terms of fund asset allocation, 48.8% were in equities holdings, which is higher than the strategic allocation of 45% and higher than the highest range value of 47%. The increase above the limit is due to the significant devaluation of sterling against most currencies which has significantly increased the value of the Fund’s unhedged equities. In addition, infrastructure is currently around 3% below its strategic allocation, with all other allocations within the allocation range bandings. Officers will be looking at the possibility of linking the equities held to the future funding of infrastructure or whether a better option would be to reduce equities  to under 47%. As part of the strategy review, Aon Hewitt have been asked to put forward a recommendation of the best approach to both hold assets to fund infrastructure but also to maintain assets within their strategic allocation bandings.

Colin Cartwright (Aon Hewitt) gave his views on the current and future markets situation. He highlighted that asset class returns had done very well although global growth remained weak and the outlook on returns were depressed. Equity markets were volatile at present and interest rates remained low.

The Panel noted:

(i)  The progress on the strategy development within the Pension Fund;

(ii)  The currency hedges that were placed on the Fund’s passive equity mandate on the 30^th of September and 7^th of October 2016;

(iii)  The daily value movements of the Fund’s assets and liabilities outlined in Appendix 1; and

(iv)  The quarterly performance of pension funds collectively and the performance of the fund managers individually;