SUFFOLK COUNTY COUNCIL PENSION NO. 1 FUND
                     STATEMENT OF INVESTMENT PRINCIPLES
                        ...
2. OBJECTIVES
2.1Funding Strategy
     With effect from March 2005 we have been required to produce and publish a Funding
...
The strategic asset allocation benchmark for the Fund along with guideline tolerances to
the strategic allocations are sho...
2.4
2.5Equity Allocations
      The Pension fund’s allocation to equities is further analysed by region below.
           ...
•Legal & General: passive (index-tracking) mandate for 25.0% of the fund.
     •Aberdeen Asset Management: active bonds ma...
Chart 3: Expected Investment Returns (relative to fund liabilities


                                                     ...
3.7Risk management and monitoring
     The Committee assesses risk relative to the strategic benchmark by monitoring the
 ...
3.9Liquidity and realisation of investments
     Most of the Fund's investments are listed on major stock markets and the ...
APPENDIX 1
                                INVESTMENT LIMITS
STATUTORY LIMITS
The Government has placed certain restrictio...
INVESTMENT MANAGER GUIDELINES
We have determined a number of additional restrictions on our investment managers, which
are...
Individual holdings. Legal and General may not invest in unlisted securities. The manager
may invest up to 100% of its man...
(a) The manager may invest in the bond and cash markets of all countries whose sovereign
    local currency credit rating ...
BLACKROCK INVESTMENT MANAGEMENT

      Investment Objective
The objective is to seek to outperform the Benchmark by 2.0% p...
JP MORGAN ASSET MANAGEMENT

       Investment Objectives
Performance target: 3% pa (gross of fees) over rolling 3 year per...
Country restrictions: No regional restrictions, with the exception of emerging markets where a
 maximum of 25% of the port...
(a) Individual holdings. The manager will hold a minimum of 3 investments at any time.
    Schroders agree their investmen...
PANTHEON VENTURES
                             Investment Restrictions
       Asset allocation and control ranges
       T...
APPENDIX 2
                             BEST PRACTICE GUIDELINES
In March 2000 the Government commissioned the Paul Myners...
Principle 6: Transparency and reporting

     • Administering authorities should act in a transparent manner, communicatin...
Partial compliance.
          • The Pension Fund Committee does not have a formal process for assessing its own
          ...
APPENDIX 3
                    INVESTMENT ALLOCATION BY MANAGER
                            FUND MANAGER STRUCTURE
      M...
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Statement of Investment Principles for No. 1 Pension Fund

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Statement of Investment Principles for No. 1 Pension Fund

  1. 1. SUFFOLK COUNTY COUNCIL PENSION NO. 1 FUND STATEMENT OF INVESTMENT PRINCIPLES (AMENDED SEPTEMBER 2009) 1. PURPOSE 1.1Local Government Pension Fund Regulations Local authority pension funds are required by the local government pension fund regulations to maintain a statement of investment principles. The statement must set out the fund’s policy on: a) The types of investments held by the fund; b) The balance between different kinds of investments held by the fund; c) Risk; d) The expected return on the fund’s investments; e) The fund’s ability to realise its investments; f) The extent to which the fund takes account of social, environmental or ethical considerations in the selection, retention and realisation of its investments; g) The fund’s policy regarding the exercise of the rights attached to its investments, including the right to vote at company general meetings. 1.2 The statement of investment principles brings together in a single document the policies that the County Council has adopted in relation to the management of the pension fund investments. The council is required to publish the statement, and this is an important mechanism for the accountability by the council to its stakeholders for its management of the Fund’s investments. 1.3Pension No. 1 Fund The Suffolk County Council Pension No.1 Fund provides pensions and retirement benefits for the employees of local government bodies in Suffolk. These include the county council, other than pensions for teachers and firefighters, the district councils, the town and parish councils, the Suffolk Probation Service and the civilian employees of the Suffolk Police Authority. The non-teaching employees of the Suffolk further education colleges are also members of the fund. In addition we have admitted a number of other smaller bodies to the fund. The County Council also administers a separate smaller No. 2 pension fund, which provides pension benefits for former employees of Ipswich Buses Ltd. 1.4Suffolk County Council Pension Fund Committee The County Council is required to adopt a Governance Policy Statement, which sets out the arrangements for the discharge of its responsibilities for administering the pension fund. Under our Governance Policy Statement, the Suffolk County Council Pension Fund Committee is responsible for the administration of the pension fund’s investments. The terms of reference for the committee are set out in the Governance Policy Statement, which is published on the County Council’s website. (www.suffolk.gov.uk ) 1
  2. 2. 2. OBJECTIVES 2.1Funding Strategy With effect from March 2005 we have been required to produce and publish a Funding Strategy Statement for the pension fund. The Department for Communities and Local Government (CLG) has stated that the purpose of the Statement is: • “to establish a clear and transparent fund-specific strategy which will identify how employers’ pension liabilities are best met going forward; • to support the regulatory framework to maintain as nearly constant employer contribution rates as possible; and • to take a prudent longer-term view of funding those liabilities.” Our funding objective is to ensure that the assets of the Pension Fund are sufficient to ensure that all pension and retirement benefits are fully covered by the actuarial value of the Fund's assets. In accordance with our Funding Strategy Statement we have determined the rate of contributions payable by each of the employers in the Fund for the three years starting 1 April 2008. 2.2Funding Level The funding level of the Pension Fund at the last statutory actuarial valuation at March 2007 was 89%. This represents a substantial improvement on the funding level at March 2004 (75%). The Fund is well on track to reaching a fully-funded position within a period of 15 years from March 2007, in line with the Funding Strategy for the fund. 2.3Investment Strategy The County Council adopted a bespoke investment strategy for the Pension Fund in 2000, following an asset-liability review, which it commissioned from the fund’s actuary. The investment strategy has been reviewed on a number of occasions, and some further changes have been made, although the overall balance between the main asset classes (equities, bonds and property) has been maintained unchanged. The main rationale for holding equities is that over the longer term they are expected to outperform bonds, which are a closer match to the Fund’s liabilities. Any investment in equities implies a departure from the matching portfolio in the pursuit of higher expected returns. The equity allocation accounts for the majority of the investment risk taken by the Fund. The equity benchmark is structured in such a way as to generate the highest return for a given level of risk, and to provide appropriate diversification, rather than being considered as matching the fund’s liabilities in any way. The Fund currently invests around 70% of its assets in equities with a target of 65% in quoted equities and 5% in private (unquoted) equities. 2
  3. 3. The strategic asset allocation benchmark for the Fund along with guideline tolerances to the strategic allocations are shown below. Cash flow from employer and employee contributions is used to re-balance any variation in allocation caused by market movements back towards the strategic asset allocation. Asset Class Benchmark Range Guidelines Allocation % UK Equities 26 +/-5% Overseas equities 39 +/-5% Total equities 65 +/-5% Private equity 5 +/-5% Property 12 +/-3% Total Alternatives 17 +/-5% UK Bonds 4 +/-3% UK Corporate Bonds 10 +/-3% UK Index-linked Gilts 4 +/-3% Total Bonds 18 +/-3% Total 100 Chart 1: Asset Allocation Pension Fund Asset Allocation Corporate Bonds UK Index-linked 10% Gilts UK Equities UK Bonds 4% 26% 4% Property 12% Private equity Overseas 5% equities 39% 3
  4. 4. 2.4 2.5Equity Allocations The Pension fund’s allocation to equities is further analysed by region below. Equities Allocations Benchmark allocation Proportion of Proportion equities of total fund % % UK 40 26 North America 29 19 Europe (excluding UK) 14 9 Japan 5 4 Pacific basin 4 2 Emerging Markets 8 5 Total Equities 100 65 Chart 2: Equity Allocations Equities allocation Emerging Markets 3. 8% Pacific basin 3% Japan UK 6% 40% Europe (ex. UK) 14% North America 29% INVESTMENT MANAGEMENT ARRANGEMENTS 3.1Appointment of investment managers We ensure that our investment managers are properly authorised under the local government investment regulations to manage the assets of the Fund. We have appointed our investment managers following tendering exercises carried out in accordance with the European procurement regulations and we have obtained appropriate professional advice from the fund’s Actuary. 3.2Investment Managers Our current investment managers are as follows: 4
  5. 5. •Legal & General: passive (index-tracking) mandate for 25.0% of the fund. •Aberdeen Asset Management: active bonds mandate for 6% of the fund. •Bernstein: specialist UK equity mandate for 14% of the fund. •BlackRock Investment Management: specialist UK equity mandate for 6.6% of the fund. •JP Morgan Asset Management: specialist global equity brief for 13.2% of the fund. •Newton Investment Management: specialist global equity brief for 13.2% of the fund. •Schroders Property Investment Management: UK property brief for 12% of the fund. •Private equity managers for 5% of the Fund (Wilshire Associates 3% and Pantheon Ventures 2%). •Currency managers for 5.0% of the Fund (Millennium Global Investments 3.2% and Record Currency Management 1.8%) Until the private equity mandates have been fully invested by their managers, any sums not invested in these mandates will be invested in Legal and General’s UK and US equity index-tracking funds. 3.3Custody State Street Bank and Trust is responsible for the custody of the assets of the Fund. The County Council has authorised State Street to undertake stocklending on behalf of the Pension Fund, subject to the statutory limits set out in Appendix 1. 3.4Kinds of investments to be held We comply with the statutory restrictions in the LGPS investment regulations. We have also determined investment allocations and restrictions for each investment manager, which are consistent with the fund’s overall investment strategy. The Head of Strategic Finance may vary these restrictions, after consultation with the members of the Pension Fund Committee. Appendix 1 shows the current investment limits. 3.5Expected return on investments The investment structure of the fund is expected to produce an excess return from the fund’s investments compared with the movement in the fund’s liabilities of around 4.5% per year. The sources of expected excess investment return relative to the fund’s liabilities are set out below. The biggest sources of expected additional returns relate to the fund’s allocations to equities (UK and overseas) and from active management. ) 5
  6. 6. Chart 3: Expected Investment Returns (relative to fund liabilities 1.5% 1.4% Return (assets vs liabilities) 1.1% 0.8% 0.7% 0.7% 0.3% 0.3% 0.1% 0.0% -0.1% UK Equity Overseas Private Equity Property Corporates Active Return Equity Note: Corporates = Corporate bonds;. 3.6Risk The risk in the investment structure is expressed by the tracking error or volatility of the expected investment returns. The investment structure for the fund has an expected tracking error of 13.3% per year. The sources of risk (the expected volatility of the excess returns relative to the movement in the fund’s liabilities) are set out below. The main sources of risk are from the fund’s allocation to equities and from yields and inflation. The diversified nature of the management arrangements of the fund mean that risk from active management makes a relatively small contribution to the overall risk in the fund’s investment strategy. Chart 4: Sources of risk 7.0% 6.3% 6.0% Risk (assets vs liabilities) 5.0% 3.8% 4.0% 2.8% 3.0% 2.0% 0.9% 1.0% 0.3% 0.3% 0.0% 0.0% 0.0% -1.0% UK Equity Overseas Yields & Currency Private Property Corp Active Equity Inflation Risk Equity spreads Risk 6
  7. 7. 3.7Risk management and monitoring The Committee assesses risk relative to the strategic benchmark by monitoring the fund’s asset allocation and investment returns relative to the benchmark. It also assesses risk relative to the fund’s liabilities by monitoring the delivery of benchmark returns relative to liabilities at the triennial actuarial valuations and regular actuarial monitoring between valuations. The Committee also provides a constraint on the fund’s investments deviating greatly from the intended approach by adopting specific asset allocation ranges and by agreeing investment guidelines for each of the fund’s investment managers. The County Council has a written investment management agreement with each of the pension fund’s investment managers, which contains the investment guidelines and restrictions on the permitted investments which the manager is allowed to hold for the fund. The restrictions in the individual investment management agreements are intended to prevent the fund’s managers from deviating significantly from their agreed investment strategy, while permitting them sufficient flexibility to manage their mandate. The restrictions also ensure that the fund overall does not breach any of the statutory restrictions on the investments it is permitted to hold under the local government pension fund investment regulations. The Fund’s investment managers hold within their mandates a mix of investments which reflects their views relative to their respective benchmarks. Within each major market each manager will maintain a diversified portfolio of stocks through direct investment or pooled vehicles. The risk in each manager’s portfolio selection relative to their benchmark index is monitored and reported by the Committee’s performance advisors, the WM Company. The tracking error relative to the benchmark index is the usual measure that is used to report the relative risk in a manager’s portfolio. This indicates the likely range within which the manager’s under- or outperformance relative to the index is expected to fall in most years. The higher the outperformance target that has been set for the mandate, the greater the level of risk that the manager will need to take in general to achieve the performance target. 3.8Performance objectives Our managers, with the exception of the passive (index-tracking) mandate, are required to manage the investments actively and are expected to outperform the benchmark indices for the respective asset classes. We expect the overall performance of the fund’s managers to produce a long-term return in excess of the investment return assumed in the actuarial valuation. The performance targets for our active managers represent the additional return compared with their benchmark indices that they are expected to achieve over rolling three year periods. Manager Performance objective compared with benchmark Aberdeen Asset Management (*) +0.75% Bernstein (*) +1.5% Schroders (*) +0.75% BlackRock Investment Management (#) +2.0% JP Morgan Asset Management (#) +3.0% Newton Investment Management (#) +2.5% Note: Performance objective is net (*) or gross (#) of management fees. As our investments with our private equity managers (Wilshire Associates and Pantheon Ventures) are long-term, we have not specified performance targets for these managers. 7
  8. 8. 3.9Liquidity and realisation of investments Most of the Fund's investments are listed on major stock markets and the managers can dispose of them quickly if necessary. Property investments, which can be fairly illiquid, make up 12% of the Fund's assets. The Fund reduces the illiquidity of the property holdings by investing in property through the medium of property unit trusts. The private equity mandates will represent 5% of the fund, when they are fully invested. These investments cannot easily be realised and the return on the investments will typically be received by the Fund over a 10 - 15 year period, as the underlying investments by the private equity managers mature. 4. MONITORING OF INVESTMENTS The Pension Fund Committee receives quarterly reports on investment performance. We obtain a regular analysis of performance from an independent performance analysis service. We publish an annual report for the pension fund, which summarises its financial position and its performance. We report on the Fund’s performance to an annual meeting of employing bodies and issue an annual statement on the Fund to all scheme members. 5. VOTING POLICY IN RESPECT OF PENSION FUND INVESTMENTS We have adopted a voting policy in respect of our direct holdings of UK equities, which promotes best practice on corporate governance in those companies. We have published the voting policy on our web site (www.suffolk.gov.uk). 6. SOCIAL, ENVIRONMENTAL OR ETHICAL CONSIDERATIONS We do not restrict our investment managers’ choice of investments by reference to social, environmental or ethical criteria. 7. REVIEW OF STATEMENT OF INVESTMENT PRINCIPLES The Head of Strategic Finance keeps the statement of investment principles under review and makes recommendations for changes to the Pension Fund Committee where appropriate. 8. MYNERS PRINCIPLES The Myners Report on institutional investment sets out 10 principles of investment management for pension funds. Myners recommended that pension funds disclose the extent of their compliance with these principles in their statement of investment principles. Appendix 2 sets out our policies and practices compared with the Myners Principles. 9. CURRENT ASSET ALLOCATION The mandates given to our existing managers are shown in Appendix 3. 8
  9. 9. APPENDIX 1 INVESTMENT LIMITS STATUTORY LIMITS The Government has placed certain restrictions on the investments of council pension funds in the local government pension scheme regulations. Statutory limits Discretionary higher limits * 1. Any single sub-underwriting contract 1% 5% 2. Investment in any single partnership 2% 5% 3. Total investments in partnerships 5% 15% 4. Total deposits and loans with any single 'person' 10% - 5. All investments in unlisted securities 10% 15% 6. Any single holding 10% - 7. All deposits with any single bank 10% - 8. Total value of all sub-underwriting contracts. 15% - 9. Total investments in the unit trusts etc. managed by 25% 35% any single manager 10.Any single insurance contract (See note) 25% 35% * 11. Total stock lending 25% - Note (*) Higher limits on particular types of investment were introduced by new pension fund investment regulations in 2003. The Pension Fund Committee has agreed to make use of the new higher limit of 35% of the fund that may be held in pooled investments by way of an insurance contract. In making use of the higher investment limit, it has authorised Legal and General to hold up to 100% of its mandate in its pooled investment vehicles. This is in order to allow Legal and General to manage the fund’s investments in index-tracking securities in the most cost effective manner, so as to minimise the transaction costs involved in buying and selling securities to re-balance the fund’s holdings in line with changes in the index. The authorisation will apply for the duration of Legal & General’s appointment as an investment manager for the fund. 9
  10. 10. INVESTMENT MANAGER GUIDELINES We have determined a number of additional restrictions on our investment managers, which are set out in their investment management agreements. These restrictions ensure that our managers adhere to the overall objectives of their mandates in terms of the investments they are permitted to hold and the risks associated with these investments. We have shown the main investment restrictions for each investment manager below. LEGAL AND GENERAL INVESTMENT MANAGEMENT Investment Objective The objective is to seek to match the Benchmark gross of fees over rolling three year periods. The Benchmark is the average of the respective FTSE indices for each of the asset classes and markets in which the mandate is invested, weighted according to the proportions in the mandate’s asset allocation shown below. Investment Restrictions Asset allocations and control ranges Asset Class Previous Revised Control Benchmark ranges Benchmark (+/-) (May 2008) (September 2009) % % Overseas equities: North America Equity Index – GBP Hedged 16.0 19.0 1.50 Europe (ex UK) Equity Index – GBP Hedged 17.0 17.0 1.50 Japan Equity Index – GBP Hedged 5.0 5.0 0.50 Asia Pacific (ex Japan) Developed Equity Index – GBP Hedged 6.0 7.0 0.50 Global Emerging Markets Equity Index 8.0 8.0 0.75 Total Overseas equities 52.0 56.0 Total equities 52.0 56.0 Bonds: UK gilts (Over 15 Year Gilts Index) 8.0 7.0 0.75 UK Index-linked (Over 5 Year Index-linked Gilts Index) 16.0 15.0 1.50 UK corporate bonds (Investment Grade Corporate Bond – All Stocks Index) 24.0 22.0 2.00 Total bonds 48.0 44.0 TOTAL 100.0 100.0 Investment Restrictions The control ranges set out the tolerances that we have allowed around the central benchmark. Legal and General manage the allocation to each of the asset classes within the control ranges shown and may not make any new investment, which results in the value of any asset class falling outside this range. 10
  11. 11. Individual holdings. Legal and General may not invest in unlisted securities. The manager may invest up to 100% of its mandate in pooled life funds. The manager may not undertake stock lending in respect of their segregated holdings without specific approval. The manager may not enter into derivative contracts for their direct (non-pooled) holdings without specific approval. ABERDEEN ASSET MANAGEMENT Investment Objective The objective is to seek to outperform the Benchmark by 0.75% per annum net of fees over rolling three year periods. The Benchmark is the average of the Merrill Lynch Sterling Non- Gilt index and the FTSE-A UK Government Over 15 year Gilts index, weighted according to the proportions in the mandate’s asset allocation shown below. Investment Restrictions The investment restrictions on the manager’s discretion in the management of the mandate are set out in full in the Investment Management agreement. The main restrictions are set out below. Asset allocation and control ranges Developed Markets (investment grade) Asset Class Benchmark Revised Range (November 2007) % % UK gilts 27 0 - 55 UK corporate bonds 73 45 – 90 UK index-linked gilts 0 0 – 25 Overseas corporate bonds (currency- 0 0 – 20 hedged) Overseas developed market corporate 0 - 10 bonds (unhedged) Sterling or hedged government bonds 10 - 55 Sterling or hedged developed market 80 - 100 bonds (government or corporate) Other Restrictions Asset Class Benchmark Revised Range (November 2007) % % Emerging market / high yield debt 0 0 – 20 (hedged) Sterling exposure 100 90 - 100 Non-sterling currency exposure 0 0 - +10 (investment grade) Aberdeen will ensure that the allocation to each of the asset classes remains within the control ranges. Aberdeen will not make any investments, which result in the market value of the asset classes falling outside the control ranges. 11
  12. 12. (a) The manager may invest in the bond and cash markets of all countries whose sovereign local currency credit rating is Investment Grade. “Investment Grade” is defined as a rating of at least BBB- by Standard & Poor’s (S&P) or Baa3 by Moody’s Investor Services (Moody’s), or be considered equivalent utilising similar credit criteria. (b) A maximum of 10% may be invested in Emerging Market Debt and High Yield. This allocation is exempt from the requirement that all investments be Investment Grade. (c) Derivatives etc. Forward foreign exchange contracts are permitted on an unleveraged basis both for the purposes of reducing or gaining exposure to currency markets. The manager may not enter into any other derivatives contracts without specific approval. (d) Pooled funds. The manager may not invest in pooled funds without specific approval. We have authorised Aberdeen to invest in the following pooled funds: Sterling Credit Fund, Global High Yield Bond Fund and the Emerging Markets Fixed Income Fund. Investments in the manager’s pooled funds are exempt from the restrictions listed above. In these cases, the investment guidelines of the relevant funds shall apply. BERNSTEIN Investment Objective The objective is to seek to outperform the Benchmark by 1.5% per annum net of fees over rolling three year periods. The Benchmark is the UK FTSE All Share Index. Investment Restrictions The investment restrictions on the manager’s discretion in the management of the mandate are set out in full in the Investment Management agreement. The main restrictions are set out below. Asset allocation and control ranges Central Benchmark % Control Ranges % UK equities 100 90 - 100 Overseas equities 0 0 - 10 Cash 0 0-5 Exchange Traded Funds 0 0-5 TOTAL 100 Except during the initial funding of the mandate or where new funding is provided for the mandate, Bernstein will manage the allocation to each of the asset classes within the control ranges indicated. Bernstein may not make any new investments, which result in the market value of the asset classes falling outside the control ranges. (a) Individual holdings. The manager may only invest in companies that are listed on the London Stock Exchange and in cash, without specific approval. A maximum of 10% of the portfolio may be invested in quoted Irish companies which are listed on the London Stock Exchange. The manager may not invest in pooled funds. (b) The manager may not invest in a single holding more than 10% of the portfolio, without specific approval. (c) The manager may invest in Exchange Traded Funds up to 5% of the portfolio. (d) Derivatives etc. The manager may enter into currency spot contracts. The manager may not enter into any other derivative contracts without specific approval. The manager may not undertake stock lending without specific approval. (e) The manager will operate within a range of +/-7% on sector weightings, relative to the index weights in the FTSE All Share Index. The manager will re-balance sectoral weights if market movements takes the under/overweight position to +/-10% relative to the index. 12
  13. 13. BLACKROCK INVESTMENT MANAGEMENT Investment Objective The objective is to seek to outperform the Benchmark by 2.0% per annum gross of fees over rolling three year periods. The Benchmark is the FTSE All Share Index. Investment Restrictions The investment restrictions on the manager’s discretion in the management of the mandate are set out in full in the investment management agreement. The main restrictions are set out below. (a) Geographic / Market / Asset Class / Sector Asset Class Permitted Range (% of Market Value of Fund) UK Equities 90-100 Overseas Equities 0-10 Cash 0-5 (b) Specific company restrictions The manager may invest for the Fund in equities that are listed on the London Stock Exchange and the stock exchanges of the following countries: France, Germany, Hong Kong, Japan, Switzerland and United States. Investment in equities on other stock exchanges is subject to specific approval by the County Council. (c) Amount or percentage of the Fund The manager may not invest for the Fund in any single UK equity holding more than 4% in excess of that holding’s weighting in the FTSE All Share Index or more than 5% of the market value of the Fund, whichever is higher, without specific approval from the County Council. The Fund’s investments in In-House Funds are not subject to this restriction. (d) In-House Funds The manager may not invest more than 10% of the Fund in the BlackRock Institutional Equity Funds UK Smaller Companies sub-fund. (e) Derivatives The manager may not enter into Derivatives contracts in respect of the Fund’s segregated holdings without specific approval from the County Council. Subject to this, the manager may deal in Derivatives (including Options, Futures, Currency Forwards and Contracts for Differences) for hedging and other purposes. The manager may only deal in Derivatives traded on or under the rules of a Recognised or Designated Investment Exchange although the manager may deal in Derivatives not traded on or under the rules of a Recognised or Designated Investment Exchange (i.e. an over-the-counter (OTC) Derivatives transaction) in respect of index futures and currency forwards. The manager is not permitted to hold any short positions in the Fund by using Derivatives. 13
  14. 14. JP MORGAN ASSET MANAGEMENT Investment Objectives Performance target: 3% pa (gross of fees) over rolling 3 year periods. Benchmark index: MSCI All Country World Index (Net Dividend Re-Invested). Investment Restrictions The investment restrictions on the manager’s discretion in the management of the mandate are set out in full in the Investment Management agreement. The main restrictions are set out below. Country restrictions: maximum under/overweight position of +/-10% against regional weightings. Cash: the manager is not expected to hold more than 3% of mandate in cash on average over a rolling 12 month period. Sectoral restrictions: maximum under/overweight +/-10% against the sectoral weightings in the index permitted. Stock positions: manager will have discretion to have nil holding in any stock and would be expected in practice to have no individual stock position higher than 1% overweight against the index. Individual holdings. The manager may only invest in equities or securities with equity characteristics (that is securities, which are listed on a formally constituted stock exchange), convertibles, preference shares and warrants, unless specific approval is given to vary this. Derivatives: The use of derivatives is permitted, subject to specific details of each type of derivative that the manager proposes to use being specified in the investment guidelines. The manager shall advise the County Council what derivatives are proposed for management of the mandate. No ‘short’ positions in any derivatives will be permitted. Borrowing: No borrowing will be permitted in respect of the mandate. NEWTON INVESTMENT MANAGEMENT Investment Objective Performance target: To outperform the Benchmark by 2.5% pa gross of fees over rolling 3 and 5-year periods. Benchmark: MSCI All Countries World Index (Net Dividend Re-Invested). Investment Restrictions The investment restrictions on the manager’s discretion in the management of the mandate are set out in full in the investment management agreement. The main restrictions are set out below. Stock positions: The manager will have discretion to have a nil holding in any stock. The manager will have discretion to have a stock position up to +5% overweight relative to the benchmark weight of the stock (i.e. maximum 6% holding for a stock that comprises 1% of the benchmark). In addition, the manager may invest no more than 10% of the Fund in the securities of any one issuer. Number of Stocks: The manager will hold a minimum of 80 stocks for the mandate. Individual holdings: The manager may only invest in equities or securities with equity characteristics (that is securities, which are listed on a formally constituted stock exchange), convertibles, preference shares, warrants and derivatives as specified below, unless specific approval is given to vary this. 14
  15. 15. Country restrictions: No regional restrictions, with the exception of emerging markets where a maximum of 25% of the portfolio value can be invested (with emerging markets defined as those countries excluded from the MSCI World index but included in the MSCI All Countries World Index). Pooled funds: In-House Funds can be held, up to a combined 10% of the portfolio value, subject to County Council approval for each required fund. Approval is given to hold the Newton South East Asia Exempt Fund, Newton UK Smaller Companies Fund and the Newton Discovery Fund. Cash: The manager’s average total cash holdings in the Fund over any 12-month period should not exceed 3% of the value of the Fund. Derivatives and currency hedging: The use of derivatives (which must be traded on a recognised or designated investment exchange) is permitted as follows; the manager may purchase index futures, warrants, exchange traded funds and put options and may invest in covered call options. Over the counter contracts (other than forward currency contracts permitted by LGPS Legislation) and outright short positions are not allowed. Derivative transactions shall be fully covered by cash or other property sufficient to meet any obligation to pay or deliver that could arise. Currency hedging (i.e. sale of currencies into the currency of the account) including cross- currency hedging (i.e. sale of currencies into a currency other than the currency of the account) is permitted. Hedging out of a currency is limited to the total portfolio exposure to that currency i.e. outright short positions are not allowed. Borrowing: No borrowing is permitted in respect of the mandate. SCHRODERS PROPERTY INVESTMENT MANAGEMENT Investment Objective The objective is to seek to outperform the Benchmark by 0.75% per annum net of fees over rolling three year periods. The Benchmark is the IPD UK Pooled Property Index. Investment Restrictions The investment restrictions on the manager’s discretion in the management of the mandate are set out in full in the Investment Management agreement. The main restrictions are set out below. Asset allocation and control ranges Schroders will invest in a range of property investments, subject to the following constraints. Fund Type Approved Ranges Open-ended funds * 60-100% Close-ended funds 0-40% Other investments and cash** 0-20% * Open-ended funds may be based in the UK or in the off-shore jurisdictions of Jersey, Guernsey, Luxembourg or Dublin. Investment in funds that are managed from any other non UK jurisdiction will be subject to specific prior approval. ** Other investments include UK property equities (subject to a range of 0-5%) and Property Index Certificates (subject to a range of 0-10%) 15
  16. 16. (a) Individual holdings. The manager will hold a minimum of 3 investments at any time. Schroders agree their investment strategy with us on a quarterly basis, and will have discretion to make investments within the terms of the strategy. Partly paid securities may not exceed 5% of the portfolio when fully paid. Schroders will invest in property based in the UK via collective investment schemes or other investments whose purpose is to invest in property. The manager may not invest more than 50% of the portfolio in a single investment. WILSHIRE ASSOCIATES Investment Restrictions Asset allocation and control ranges The allocation benchmarks for the portfolio are as follows: Fund Type Approved investments Benchmark $M % U.S. Funds US Private Markets Fund V 9.9 US Private Markets Fund VI 9.9 US Private Markets Fund VII 19.1 38.9 58.1 60% European Europe Private Markets Fund V 6.6 Funds Europe Private Markets Fund VI 7.3 Europe Private Markets Fund VII 14.2 28.1 41.9 40% TOTAL $67.0M 100.0 100% Investment Type Benchmark Venture Capital 35% Management Buy-out 65% A deviation of +/-20% from each benchmark is allowed. No investment may be made in any Wilshire Fund which has a commitment period or investment life of more than 20 years. The manager may not: (a) make any transaction in a contingent liability investment on behalf of the Council; (b) underwrite or sub-underwrite any issue or any offer for sale of investments on behalf of the Council; (c) commit Suffolk to supplement the Fund Portfolio (including by borrowing monies on behalf of Suffolk), except with the prior consent of the Council. (d) make any stock lending transactions on behalf of the Council; 16
  17. 17. PANTHEON VENTURES Investment Restrictions Asset allocation and control ranges The asset allocation benchmarks for the portfolio are as follows: Fund Type Approved investments Revised Benchmark (November 2007) £M % U.S. Funds Pantheon USA Fund V 4.1 Pantheon USA Fund VII 3.5 7.6 27.4 30% European Pantheon Europe Fund IV 4.9 Funds Pantheon Europe Fund V 3.9 8.8 31.8 30% Pantheon Asia Pantheon Asia Fund IV 1.8 6.5 5% Funds Secondary Pantheon Global Secondary 2.3 Investments Fund II Pantheon Global Secondary 1.8 Fund III Pantheon International 5.4 Participations (PIP) 9.5 34.3 35% TOTAL 27.1 100% 100% A deviation of +/-10% from each benchmark is permissible in respect of each investment. No investment may be made in any Pantheon in-house fund which has a commitment period or investment life of more than 20 years. The manager may not: (a) make any transaction in a contingent liability investment on behalf of the Council; (b) underwrite or sub-underwrite any issue or any offer for sale of investments; (c) commit the Council to supplement the private equity fund portfolio (including by borrowing monies on behalf of the Council), except with the prior consent of the Council. (d) make any stock lending transactions on behalf of the Council. 17
  18. 18. APPENDIX 2 BEST PRACTICE GUIDELINES In March 2000 the Government commissioned the Paul Myners to undertake a review of institutional investment in the UK. Myners recommended 10 principles that he considered represented best practice for pension fund trustees in the management of their investment responsibilities. The Government reviewed the Myners’ principles in 2008, and issued a revised set of six principles which are set out below. Principle 1: Effective decision-making • Administering authorities should ensure that decisions are taken by persons or organisations with the skills, knowledge, advice and resources necessary to take them effectively and monitor their implementation. • Those persons or organisations should have sufficient expertise to be able to evaluate and challenge the advice they receive, and manage conflicts of interest. Principle 2: Clear objectives • Overall investment objectives should be set out for the fund that take account of the scheme’s liabilities, the potential impact on local council tax payers, the strength of the covenant of the participating employers, and the attitude to risk of both the administering authority and the scheme employers, and these should be clearly communicated to advisers and investment managers. Principle 3: Risk and liabilities • In setting and reviewing their investment strategy, administering authorities should take account of the form and structure of liabilities. • These include the implications for council tax payers, the strength of the covenant of participating employers, the risk of their default and longevity risk. Principle 4: Performance assessment • Administering authorities should arrange for the formal measurement of the performance of the investments, investment managers and advisers. • Administering authorities should also periodically make a formal policy assessment of their own effectiveness as a decision-making body and report on this to scheme members. Principle 5: Responsible ownership • Administering authorities should adopt, or ensure their investment managers adopt, the Institutional Shareholders’ Committee (ISC) Statement of Principles on the responsibilities of shareholders and agents. • A statement of the authority’s policy on responsible ownership should be included in the Statement of Investment Principles. • Administering authorities should report periodically to members on the discharge of such responsibilities. 18
  19. 19. Principle 6: Transparency and reporting • Administering authorities should act in a transparent manner, communicating with stakeholders on issues relating to their management of investment, its governance and risks, including performance against stated objectives. • Administering authorities should provide regular communication to members in the form they consider most appropriate. We have shown below the new Myners principles and how the practices followed for the Suffolk County Council Pension Fund compare with the best practice guidance which has been issued by HM Treasury in relation to them. Principle 1: Effective Decision-Making Full compliance. • Appropriate skills. New Pension Fund Committee members receive initial training on the role and responsibilities of the Committee. • The Head of Strategic Finance provides advice to the Committee and we employ external advisors as necessary to advise on specific issues (e.g. on performance measurement, actuarial issues and corporate governance). • Given the small size of the committee, an investment sub-committee is not considered necessary. • The Pension Fund has a business plan, which is subject to an annual review. • The remuneration of Committee members is subject to the statutory arrangements for members’ allowances. Committee chairmen receive a special responsibility allowance. • The Committee’s contracts for advisory services for actuarial and investment advice are subject to regular competitive tendering. Principle 2: Clear Objectives Full compliance. • The statement of investment principles sets out our long-term investment objective of the fund. • We have explicit written investment management agreements with each of our investment managers, which specify their performance objectives and the basis of their fees. • The fund invests in a range of asset classes and uses a mixture of active and passive investment management. The investment structure of the fund was adopted following the conduct of an asset liability review undertaken by the fund’s investment advisers. • The majority of the liabilities of the pension fund relates to local authority and other public sector employers, and are ultimately underwritten by the Government. Principle 3: Risk and Liabilities Full compliance. • The statement of investment principles includes an explicit assessment of the risk of underperformance of the investment strategy for the fund due to market conditions. • The risks of the asset allocation relative to the fund’s liabilities were considered as part of the asset liability review that was undertaken for the fund. • The Pension Fund Committee reviews the factors affecting the long-term performance of the fund in an annual review prepared by its independent performance advisers. • The Pension Fund operates within the internal control arrangements administered by the County Council, which are subject to independent external audit by the Audit Commission. • The impact of the investment strategy on the funding position of the Pension Fund is considered at the actuarial valuation, and the affordability of employer contributions is assessed in the Committee’s consideration of the funding strategy for the Fund. Principle 4: Performance Assessment 19
  20. 20. Partial compliance. • The Pension Fund Committee does not have a formal process for assessing its own performance and effectiveness. • The Pension Fund Committee receives a regular analysis of the performance of its investment managers from an independent performance analysis service. • The selection of external advisers is subject to competitive tendering in accordance with the relevant statutory requirements and the County Council’s own procurement regulations. Principle 5: Responsible Ownership Partial compliance. • The Pension Fund Committee has not formally considered the Institutional Shareholders’ Committee (ISC) statement of principles on the responsibilities of shareholders and agents. • The Pension Fund Committee has adopted a proxy voting policy and votes on issues covered by that policy in relation to our segregated UK equity holdings. Principle 6: Transparency and Reporting Full compliance. • The Pension Fund Committee arranges for the publication of all the key statements of policy for the Pension Fund, including the governance policy statement, the statement of investment principles, the funding strategy statement and the administration strategy. • The Pension Fund annual report and accounts and the agenda papers for the Pension Fund Committee meetings are published on the County Council’s website. • The Pension Fund Committee holds an annual meeting to report on the fund’s performance to the employers in the Pension Fund. • We issue an annual statement of the fund’s performance to all employees and pensioners covered by the scheme. 20
  21. 21. APPENDIX 3 INVESTMENT ALLOCATION BY MANAGER FUND MANAGER STRUCTURE Manager Asset Current class (September 2009) % Legal & General (see Note) Equities & 25.0 bonds Alliance Bernstein UK equities 14.0 BlackRock Investment Management UK equities 6.6 JP Morgan Asset Management Global 13.2 equities Newton Investment Management Global 13.2 equities Schroders Property 12.0 Aberdeen Bonds 6.0 Wilshire (see Note) Private 3.0 equity Pantheon (see Note) Private 2.0 equity Record Currency Management Currency 1.8 Millennium Global Investments Currency 3.2 Total 100.0 Note: The sums allocated to our private equity managers which have not yet been drawn down are managed as part of the Legal & general index-tracking mandate. Chart 5: Fund Managers (September 2009) Fund managers Pantheon Record Wilshire 2% 2% 3% Millennium Legal & Aberdeen 3% General 6% 25% Schroders 12% Alliance Bernstein Newton 14% 13% BlackRock JP Morgan 7% 13% 21

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