Statement of Investment Principles

1.0 Introduction

1.1 This is the Statement of Investment Principles adopted by Haring...
•   to ensure the long-term solvency of the Fund (and of the share of the Fund
       attributable to individual employers...
•   increase our property allocation from 6 to 10 per cent.

   •   Reduce our allocation in bonds from 22 to 20 per cent....
schemes constituted by the companies are managed by any one body from 25 to 35
   per cent. This increase in limit has the...
3.12 Fees

   Fees for the provision of Investment Management and related administrative services
   are levied by the inv...
The fund’s policy in practical terms applies to UK and non-UK equities and to pooled
      funds, not bonds.

      There ...
4.4      Independent Advisor for Trustees

      An independent advisor has been appointed from March 2004. The advisor at...
3. Asset Mix as at 1 April 2009

                                     Fund       Benchmark
                               ...
4. Investment Managers and Value of Assets Held as at 31st March 2009

      Manager              Value £M          % Tota...
5. Customised Benchmark

              Asset Class               Asset Description                   Benchmark
     A.    ...
6. Asset Allocation & tolerances

                              Capital      Capital     Fidelity     Fidelity     Bernste...
7.Investment management and administration fees

          Investment Manager                    Scale Charges(Annual rate...
8. AVC Arrangements

The options for members’ AVCs are set out below, together with details of the principles
governing th...
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Statement of investment principles pensions committee 2009

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Statement of investment principles pensions committee 2009

  1. 1. Statement of Investment Principles 1.0 Introduction 1.1 This is the Statement of Investment Principles adopted by Haringey Council (‘The Council’) as administrating authority of the Haringey Council Pension Fund in relation to the investment of assets. The Statement is made in accordance with The Local Government Pension Scheme Regulations 1997 (the main regulations) as amended. It is subject to periodic review by the Council’s Pensions Committee (‘The Committee’). The attached annexations form an integral part of, and should be read in conjunction with this Statement. 1.2 Due account has been taken of the maturity profile of the Fund (in terms of the relative proportions of liabilities in respect of pensioners and active members), together with the level of disclosed surplus or deficit. 1.3 Investments are monitored on a quarterly basis by Pensions Committee (property on an annual basis as is a longer term investment), acting on the delegated authority of the Council. Advice is received as required from professional advisers. In addition, the Committee formally reviews the performance of Fund Managers by means of an annual health-check. Investment strategy is reviewed formally every three years although appropriate changes in between formal reviews are considered by Committee on a timely basis. In all cases, the Committee is advised by the Chief Financial Officer in a strategic capacity, by the independent advisor to trustees and by our external advisors as appropriate. 1.4 The Committee has agreed asset allocation benchmarks, performance targets and various controls on the Fund’s investments. These reflect the Committee’s views on the appropriate balance between maximising the long-term return on investments and minimising short term volatility and risk. The benchmarks reflect the position following the triennial actuarial valuation of the Fund as at 31 March 2007. It is intended that the Pension Fund strategy will be reviewed at least every three years to reflect revised actuarial assessments of the Funds financial position. Interim actuarial valuations are completed on an annual basis. 2.0 Objectives 2.1 Primary Objective The primary objective of the Fund is as follows. To provide for members pension and lump sum benefits on their retirement or for their dependants benefits on death before or after retirement, on a defined benefits basis. In order that this primary objective can be achieved, the following funding and investment objectives have been agreed. 2.2 Funding Objectives - Ongoing Plan A summary of the Funds approach to funding its liabilities is contained in the councils Funding Strategy Statement (FSS) which came into effect from 31 March 2005. This document is reviewed every three years. The last review was completed in March 2008, with the next full review due to be completed by 31st March 2011.Funding objectives stated in the FSS include the following:
  2. 2. • to ensure the long-term solvency of the Fund (and of the share of the Fund attributable to individual employers); • to ensure that sufficient funds are available to meet all benefits as they fall due for payment; • not to restrain unnecessarily the investment strategy of the Fund so that the Administering Authority can seek to maximise investment returns (and hence minimise the cost of the benefits) for an appropriate level of risk; • to minimise the degree of short-term change in the level of each employer’s contributions where the Administering Authority considers it reasonable to do so; • to use reasonable measures to reduce the risk to other employers and ultimately to the Council Tax payer from an employer defaulting on its pension obligations; and • to address the different characteristics of the disparate employers or groups of employers to the extent that this is practical and cost-effective. 2.3 Investment Objectives To achieve a return on Fund assets which is sufficient, over the long-term, to meet the funding objectives set out above on an ongoing basis. 3.0 Investment Parameters 3.1 To achieve the investment objectives the following have been agreed: 3.2 Choosing Investments The Committee will ensure that one or more investment managers are appointed who are authorised under the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 to manage the assets of the Fund. The Committee, after seeking appropriate investment advice, may give specific directions as to the strategic asset allocation and will ensure the suitability of assets in relation to the needs of the Fund. The investment managers will be given full discretion over the choice of individual stocks and are expected to maintain a diversified portfolio. Pensions Panel (Committee from 2007/08 municipal year) have completed a full review of the Fund’s investment management strategy and our new structure was largely implemented on 16 March 2007. The Committee were advised by the Chief Financial Officer, Independent Advisor to Trustees and our former external advisors, Hymans Robertson. Key changes agreed were as follows: • reduce our holdings of UK equities from 43 to 30 per cent, • increase our holdings in overseas equities from 27 to 35 per cent, • introduce a 5 per cent allocation to a global market cap mandate (this is included in the percentage allocations for UK equities and overseas equities shown above), • introduce a 5 per cent allocation to private equity, • introduce an active currency overlay and passive currency hedging,
  3. 3. • increase our property allocation from 6 to 10 per cent. • Reduce our allocation in bonds from 22 to 20 per cent. We took independent advice from our advisors regarding options for changing our previous investment strategy. It was decided to continue to invest approximately 70 per cent of funds in equities and the remainder in other assets. It is very important to not take too much risk but equally we need to take some risk as the fund needs to grow. We were advised that opportunities for growing the fund will improve by reducing the proportion of funds held in UK equities. We were advised that the changes made will further improve our opportunities for growing the fund whilst taking due regard to risk. As part of our review Wellington ceased to be one of our Fund Managers. It will take time to increase our holdings in property and to build holdings in private equity and currency. The Fund Management structure has resulted in the management of the Fund’s investments being placed with four independent fund managers, Bernstein, Capital International, Fidelity and ING plus a newly appointed private equity manager (Pantheon). We are in the process of investing with two active currency managers, Investec and Record. In addition a Master Custodian is used. The investment performance of the Fund is critical as it impacts directly on the level of employer’s contributions that the Council is required to pay. On 26 March 2007 the Pensions Committee approved an amendment to ING’s property mandate such that ING may now invest up to 25% of their mandate in European Pooled Property funds. 3.3 Investment Managers The managers appointed to manage the Fund’s assets as at 1 April 2007 are summarised in annex 4. However, following a period of unsatisfactory performance, Bernstein were replaced by Legal & General on 17 June 2009.On 16 April 2007 the Pensions Committee approved the appointment of Pantheon Ventures Limited as the funds Private Equity manager. To date Pantheon had made 11 investment calls totalling £5.3 million on the funds behalf in a US Private Equity fund, five investment call of £0.95m in a Asia Private Equity Fund and 3 calls totalling £3.2 in a Europe Fund. On 11 June 2007 Pensions Committee approved the appointment of two Active currency managers. Contracts are currently being finalised with the two managers concerned, Investec and Record. 3.4 Custody The former Pensions Panel (now Pensions Committee) appointed The Northern Trust Company to act as Global Custodians for the Fund from April 2002. Performance and fees charged by Northern Trust are reviewed annually by Pensions Committee. 3.5 Kinds of Investments to be held The type of assets each Investment Manager is mandated to hold is shown in annex 4. 3.6 Limit for investments in OEIC’s It is permitted under the Local Government Pension Scheme (Management and Investment of Funds) (Amendment) Regulations 2003 to increase the limit of investments in open-ended investment companies where the collective investment
  4. 4. schemes constituted by the companies are managed by any one body from 25 to 35 per cent. This increase in limit has therefore been made in respect of one of our Fund Managers, Fidelity Pensions Management from 10 September 2007. 3.7 Performance Reviews Quarterly performance review meetings are held by the Chief Financial Officer and / or his representative with each Fund Manager (semi-annual meetings with Private Equity and Active Currency managers). Fund Managers attend Pensions Committee on alternate quarters to present the current position and to answer questions from Trustees and the independent advisor to Trustees. Exceptions are the Property and Private Equity managers who attend Committee annually because property and private equity investments are deemed to be of a longer term nature. The Chief Financial Officer meets with the Custodian on an annual basis and the Custodian attends Pensions Committee on an annual basis. 3.8 Balance between different kinds of investments: Management agreements are in place for each Investment Manager that set out their benchmark and performance targets, with those in place at start of April 2007 summarised in annex 4 and 5. Investment restrictions determined by the Committee including asset allocations and permitted tolerances are also prescribed in the agreements, the latter are detailed in annex 6. The benchmarks agreed by the Committee provide an appropriate balance between risk and return, in light of the liability profile and funding level of the Fund. 3.9 Risk The adoption of asset allocation benchmarks (as described above) and the explicit monitoring of performance relative to performance targets, constrains the investment managers from deviating significantly from the intended approach, while permitting flexibility to manage the Fund in such a way as to enhance returns. The appointment of multiple Investment Managers introduces a measure of diversification of manager risk. Each manager is expected to ensure a diversified portfolio of investments. 3.10 Expected return on investments The strategic benchmark is expected to produce a return over the long term in excess of the investment return assumed in the actuarial valuation. The fund’s assets are managed on an active basis and the fund managers are expected to outperform their respective benchmarks over the long term and achieve target. In this way, the investment performance achieved by the fund is expected to exceed the rate of return assumed by the actuary in funding the fund on an ongoing basis. 3.11 Realisation of investments The majority of stocks held by the fund’s Investment Managers are quoted on major stock markets and may be realised quickly if required.
  5. 5. 3.12 Fees Fees for the provision of Investment Management and related administrative services are levied by the investment managers based on scale charges linked to the market values of the portfolio under management. Fees are calculated quarterly in arrears and the council invoiced in the month following the quarter end. Where the managers’ services commence or cease during a quarter, fees are pro-rata on a daily basis. Where managers invest in–house investment vehicles e.g unit trusts where management fees are covered in the price of the units, the market value of such holdings are deducted from the portfolio value at the quarter end before calculating chargeable fees. This protects the fund from multiple charging for services provided. The scale charges levied by the Investment managers as at the start of April 2007 are shown in annex 7. Fees in respect of Legal & General who replaced Bernstein as at 17 June 2009 are shown as a footnote. The fees of the Global Custodian are levied based on the number of accounts maintained (one account per investment manager), a scale charge for safekeeping the assets (country and market value related) and transaction charges for the purchase/sale of assets and related foreign exchange transactions. Fee levels are reviewed periodically to ensure they are reasonable. The latest review was reported to Pensions Committee on 10 September 2007. 3.13 Additional Voluntary Contributions (AVC’s) Members have the opportunity to invest in AVC funds as given in Annex 8 4.0 Other Issues 4.1 Responsible Investment Our Responsible Investment policy has been reviewed and agreed by Pensions Committee at its meeting on 23rd June 2008.The revised Responsible Investment policy is set out in 4.2 below. 4.2 Revised Responsible Investment Policy The fund believes that the adoption by companies of positive Environmental, Social and Governance principles (ESG) can enhance their long term performance and increase their financial returns. These issues are of concern to the Pension Fund because it is considered that companies who • do not have regard for the social and environmental impact of their business, or • who conduct their business in a way which is not sustainable over the longer term; are in danger of adversely affecting the future prospects of the company, and potentially the company’s long term share price. The trustees have an overriding fiduciary duty to the members of its pension fund to maximise financial returns, whilst taking a prudent level of risk. Subject to complying with that duty, the Pensions Committee has decided to use its influence, via its fund managers, to improve corporate behaviour where it finds examples of shortcomings in the approach of companies to these issues.
  6. 6. The fund’s policy in practical terms applies to UK and non-UK equities and to pooled funds, not bonds. There will be no engagement in stock screening or exclusionary approaches. In instances where shareholder value and responsible investment conflict the fund manager would vote for shareholder value and would report these instances to the next meeting of the Pensions Committee with brief reasons why they voted as they did. If there were no instances in a quarter where shareholder value and responsible investment clash then a nil return would need to be reported. Fund managers are expected to sign up to the Enhanced Analytics Initiative, or demonstrate that they have access to at least equivalent research. In December 2007 Haringey signed up and formally adopted the ‘United Nations Environmental Principles for Responsible Investment’ initiative and we encourage our fund managers to also adopt these principles. The six principles contained in the initiative are as follows; - • Incorporate Environmental Social and Governance issues into investment analysis and decision making processes; • Be active owners and incorporate Environmental Social and Governance issues into ownership policies and practices; • Seek appropriate disclosure on Environmental Social and Governance issues by the entities in which we invest; • Promote acceptance and implementation of the principles within the investment industry; • Work together to enhance our effectiveness in implementing the principles; • Each report on our activities and progress towards implementing the principles. 4.3 The Local Government Pension Scheme (Management and Investment of Funds) (Amendment) Regulations 2002 - SI 2002 No.1852 This provision requires that this SIP sets out the extent to which the Pension Fund complies with the ten principles of investment practice contained in the document published in April 2002 by CIPFA called ‘CIPFA Pensions Panel Principles for Investment Decision Making in the Local Government Pension Scheme in the UK Guidance note issue no.5’. The Fund complies with all but one of the Myners principles. The trustees have an issue regarding the payment of trustees.
  7. 7. 4.4 Independent Advisor for Trustees An independent advisor has been appointed from March 2004. The advisor attends meetings of Pensions Committee and the quarterly officers meetings with our Fund Managers to scrutinise performance. Before each meeting of Pensions Committee the advisor has a meeting with trustees to discuss any relevant issues, to give advice and to discuss questions to ask Fund Managers. The advisor is fully involved in our reviews of investment strategy. ANNEXATIONS 1. Main Actuarial Assumptions as at 31 March 2007 % per annum Relative to RPI % per annum RPI Inflation 3.2 - Increases in pay (excl. increments) 4.7 1.5 Investment returns - equities 6.1 2.8 (prevailing market) - bonds 4.5 1.3 The actuarial valuation as at 31 March 2007 was carried out using unsmoothed market values to value the funds assets. The projected unit method with a one year control period was used to determine the cost of benefits accruing for the fund as a whole and for employers who continue to admit new members. For employers who no longer admit new entrants the attained age method was used to determine these costs. It should be noted that the absolute returns as given above are not critical to the results of the Valuation - it is the returns relative to one another which are more significant (in particular, the return achieved in excess of inflation). The Trustees have commissioned Hymans Robertson to undertake annual interim valuations for the fund. The last valuation of the fund was as at the end of March 2007 and the results were reported to Pensions Committee on 25 June 2007. 2. Liability Mix Valuation date 2007 Past Service Liabilities £m Employees 354 Deferred pensioners 154 Pensioners 290 Total liabilities 798 Assets 620 Surplus/(Deficit) (178) Funding Level 78% Based on the actuarial valuation as at 31 March 2007
  8. 8. 3. Asset Mix as at 1 April 2009 Fund Benchmark % * % UK Equities 32 30.5 Overseas Equities 37 34.5 UK Index linked Bonds 4 6 Property 6 10 Private Equity 0 5 UK fixed Interest Bonds 7 7 Corporate Bonds 9 7 Overseas Bonds 0 0.0 Cash 5 0.0 Monetary assets 100 100 * L.B. Haringey Pension Fund Bespoke Benchmark
  9. 9. 4. Investment Managers and Value of Assets Held as at 31st March 2009 Manager Value £M % Total Portfolio Mandate Benchmark Performance Target Capital International - 95.6 19.8 Global Equity Customised +2.0% (gross) of fees Equities (Annex 5C) p.a over a rolling 3 year period Capital International - 63.1 13.1 Bonds Customised +1.0% (gross) of fees Fixed Income (Annex 5A) p.a over a rolling 3 year period Fidelity Pensions 98.2 20.4 Global Equity Customised +1.7% (gross) of fees Management- Equities (Annex 5D) p.a over a rolling 3 year period Fidelity Pensions 64.4 13.3 Bonds Customised +0.6% (gross) of fees Management-Fixed (Annex 5B) p.a over a rolling 3 Income year period. Alliance Bernstein – 71.6 14.8 UK Equities FTSE All Share +2.0% (gross) of fees UK Equities p.a over a rolling 3 year period Alliance Bernstein – 18.9 3.9 Global Equity Morgan Stanley +3.0% (gross) of fees Global Equities Capital International p.a over a rolling 3 (MSCI) World Index year period ING Real Estate 36.0 7.5 Property HSBC/APUT Balance +1% (gross) of fees Funds Index p.a. over a rolling 3 year period Pantheon Private 11.5 2.4 Private Equity Morgan Stanley + 0.75% (gross) of Equity Capital International fees p.a. (MSCI) World Index +5% Unallocated Cash 23.0 4.8 N/A N/A (Held pending investment TOTAL 482.3 100
  10. 10. 5. Customised Benchmark Asset Class Asset Description Benchmark A. BONDS –Capital International 1 UK Gilts FTSE A over 15 year gilts 2 Corporate Bonds Merrill Lynch Sterling non gilt all maturities 3 Index Linked FTSE ILG (over 5 years) B. BONDS –Fidelity Pensions Management 1 UK Gilts FTSE A over 5 year gilts 2 Corporate Bonds Merrill Lynch Sterling non gilt over 10 years 3 Index Linked FTSE ILG (over 5 years) C. GLOBAL EQUITY -Capital International 1 UK FTSE All Share 2 North America FTSE AW Developed North America 3 Europe –Ex UK FTSE AW Developed Europe(ex UK) 4 Japan FTSE AW Developed Japan 5 Pacific(Ex Japan) FTSE AW Developed Pacific(ex Japan) 6 Emerging Markets MSCI Emerging Markets D. GLOBAL EQUITY -Fidelity Pensions Management 1 UK FTSE All Share 2 US S&P 500 3 Europe –Ex UK FTSE AW Developed Europe(ex UK) 4 Japan FTSE AW Japan 5 Pacific(Ex Japan) FTSE AW Developed Asia Pacific(ex Japan) 6 Emerging Markets MSCI Emerging Markets free
  11. 11. 6. Asset Allocation & tolerances Capital Capital Fidelity Fidelity Bernstein Bernstein Pantheon ING Manager (Equities) (Bonds) (Equities) (Bonds) (UK) (Global) % Asset % % % % % % % allocation(tolerance) Equities UK 25(15-35) 0 17(+/-10) 0 100 10.1 0 0 North America 25(15-35) 0 17(+/-4) 0 0 49.6 MSCI 0 0 World (+/-10%) Europe(ex UK) 24(14-34) 0 16(+/-4) 0 0 18.8 MSCI 0 0 World (+/-10%) Japan 13(8-18) 0 8.5(+/-3.5) 0 0 11.0 MSCI 0 0 World (+/-10%) Pacific Basin 6(3.5-8.5) 0 4(+/-2.5) 0 0 3.3 MSCI 0 0 World (+/-10%) Emerging Markets 7(0-14) 0 4.5(+/-2) 0 0 7.2 MSCI 0 0 World (+/-10%) Private Equity 0 0 0 0 0 0 100 0 Bonds UK Gilts 0 35(15-55) 0 11.5 0 0 0 0 (30-40) Corporate Bonds 0 35(15-55) 0 11.5 0 0 0 0 (30-40) Index Linked 0 30(10-50) 0 10 (25-35) 0 0 0 0 Property 0 0 0 0 0 0 0 100 On 17 June 2009 , following the termination of Bernstein’s contract, the assets were placed in 5 index pooled funds managed by Legal & General on bases that maintain the above asset allocation.
  12. 12. 7.Investment management and administration fees Investment Manager Scale Charges(Annual rate) Capital International (Equity Mandate) On first £17.5mn 0.675% On next £25mn 0.525% Over £42.5mn 0.400% Capital International (Bond Mandate) On first £35mn 0.300% On next £35mn 0.200% On next £140mn 0.180% Over £210mn 0.150% Fidelity (Equity Mandate) On first £25mn 0.75% On next £25mn 0.50% On next £50mn 0.30% Over £100mn 0.25% Excludes relationship discount Fidelity (Bond Mandate) On first £25mn 0.335% On next £25mn 0.2175% On next £50mn 0.15% Over £100mn 0.125% Excludes relationship discount Alliance Bernstein (Global) * On first £15mn 0.800% On next £15mn 0.600% On next £30mn 0.500% Over £60mn 0.400% Alliance Bernstein (UK)* On first £15mn 0.550% On next £15mn 0.400% On next £30mn 0.300% On next £60mn 0.250% Over £120mn 0.200% ING - Real Estate Up to £100mn 0.20% Pantheon –Private Equity Annual Management Fee of 0.75%of committed capital, tapering in at 0.375% of commitments in the first year,0.5625% of commitments in the second year, with the full fee payable from the third year onwards. *Following the termination of Bernstein’s contract on 17 June 2009 the fees payable to the incoming manager Legal & General for the passive management of the 5 pooled vehicles used to replicate the agreed asset allocation are within the range 04% p.a. and .14% p.a.
  13. 13. 8. AVC Arrangements The options for members’ AVCs are set out below, together with details of the principles governing the range of investment vehicles offered. In its review of AVC fund options, the Members may wish to introduce the ethical fund options of both providers. Members can choose to switch AVC’s between options available to them from time to time, subject to the terms and conditions of each vehicle. At retirement, the accumulated value of a member’s AVC is used to purchase an annuity on the open market or buy additional service. Provider Vehicle Equitable Life* Building Society With Profits Managed Fund Prudential Deposit With Profits Discretionary (Managed) Clerical & Medical With Profits Managed Deposit *Not Available to New Applicants The With Profits vehicles are designed to provide smoothed medium to long term growth by investing in a range of assets including equities and property. The investment returns are distributed by way of reversionary and terminal bonuses. The objective of the With Profits and managed funds is to provide returns on members’ contributions which at least keep pace with inflation. The building society options offer interest at competitive rates.

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