The Pensions Investment Sub-Committee of Bromley Council met on Wednesday 8 September 2010 to review the performance of the Bromley Pension Fund and discuss new investment regulations. The committee noted the fund's strong performance in the 2009/10 financial year and agreed to revise the Statement of Investment Principles to comply with new regulations.

Pension Fund Performance

The Sub-Committee reviewed the investment performance of Bromley's Pension Fund for 2009/10 and the first quarter of 2010/11. The fund's performance for the year was the second best among 87 local authority funds, ranking in the second percentile. The total market value of the fund had significantly increased, reaching £422m by August 2010. Both fund managers, Baillie Gifford and Fidelity, achieved returns above their benchmarks. Baillie Gifford delivered an overall return of +51.3%, exceeding their benchmark by 6.3%, while Fidelity returned +45.9%, 4.4% above their benchmark. Overall, the fund's performance was 9.9% above the local authority average for the year.

During the June quarter of 2010/11, Baillie Gifford returned -7.6% (0.8% above benchmark) and Fidelity returned -9.0% (0.7% below benchmark). The report also highlighted strong medium and long-term returns, particularly over the last three years following the adoption of a revised benchmark in 2006.

Additional information provided included summaries of early retirements, the 2009/10 Pension Fund Revenue Account outturn, first quarter position for 2010/11, fund membership data, and changes in the fund's market value. The 2009/10 outturn showed a surplus of £9.4m, and fund membership increased by 516 members.

A representative from the WM Company presented an analysis of the 2009/10 results, discussing market backgrounds and the performance of various asset classes. They noted that while other local authority funds were investing in alternatives, these had not always boosted recent performance. The representative commended Bromley's approach of using only two fund managers, contrasting it with other authorities that used up to 10 or 12, which could lead to control issues.

Councillor Julian Grainger suggested that cash or capital injections into the fund be visually separated in graphs to distinguish performance-driven growth from capital additions. The Technical Group Accountant confirmed that the reported value increases were solely due to performance, with employee contributions directed to the Pension Fund Revenue Account. Further discussion was planned with Councillor Grainger regarding the presentation of such data. Councillor Grainger also commented on the ten-year return figures, finding them relatively modest.

The Sub-Committee resolved to note the report and presentation reviewing investment performance.

WM Annual Report

The WM Annual Report was considered alongside the Pension Fund Performance report, with a representative from the WM Company attending to present the findings.

Pension Fund – 2009/10 Audit Plan

The Sub-Committee noted the 2009/10 Audit Plan for the Pension Fund, prepared by PricewaterhouseCoopers LLP (PWC). The auditor had completed their audit of the Council's accounts, including the Pension Fund. It was also proposed that the 2010/11 Audit Plan be submitted in advance of the audit to allow for proper consideration and comment.

The Sub-Committee resolved to note the Pension Fund Audit Plan for 2009/10 and agreed that the 2010/11 plan be submitted earlier to enable consideration in advance of the audit.

Pension Fund Annual Report 2009/10

The draft Pension Fund Annual Report for the year ending 31 March 2010 was presented, as required by the Local Government Pension Scheme (Administration) Regulations 2008. The report indicated that the Bromley Pension Fund's total net assets had risen to £447.8m at 31 March 2010, a significant increase of almost 50% from £299.2m at 31 March 2009, largely due to a major stock market recovery. This followed a loss of approximately £63m (17%) in 2008/09.

The Fund outperformed its benchmark by 5.0% over the year, achieving a +48.7% return against a benchmark return of +41.0%. This performance placed it favourably within the local authority universe, achieving a 2% ranking. Total membership of the fund increased to 13,380 by 31 March 2010. Payments into the Fund from contributions, transfers, and investment income totalled £40.8m, while payments out for pensions, lump sums, and administration amounted to £31.4m. PWC was expected to provide a revised opinion in the final report.

The Sub-Committee resolved to note the Pension Fund Annual Report 2009/10 and to ensure its publication by the statutory deadline of 1 December 2010, following completion of the external audit by PWC.

New Investment Regulations and Myners Principles

The Sub-Committee considered proposed changes to the Pension Fund Statement of Investment Principles to align with the new Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 and the Myners' Principles on institutional investment. The revised regulations, effective from 1 January 2010, require specific statements on stock lending activities and responsible ownership.

Key changes highlighted included:

• Pension fund cash held for benefit payments would be subject to a separate treasury management strategy and could not be lent to the Council.
• The Statement of Investment Principles must include a statement on the extent of compliance with the statutory guidance on the six new Myners' Principles .
• The Statement of Investment Principles should now reference the Fund's stock lending activities and its policy on responsible ownership.

The report included a draft Statement of Investment Principles and outlined necessary developments to ensure full compliance, with a review of working practices scheduled for completion by December 2011.

The Sub-Committee resolved to note the report and agreed the revised Statement of Investment Principles.

AEGON Pilot Outturn

The Sub-Committee received an update on the AEGON Assert management's Asset Allocation Service.

It was resolved that AEGON be asked to produce a report for the Sub-Committee's next meeting, providing the information requested by Members.

Pension Fund - Investment Report

Quarterly performance reports for the period ending 30 June 2010 from fund managers Fidelity and Baillie Gifford were circulated and noted. A representative from Fidelity attended to present their review and answer questions.

Investment in Property

A report was presented on property investment, following a request at the previous meeting, to consider its inclusion as an asset class for the Bromley Pension Fund.

It was resolved that the Sub-Committee be asked to note the report and maintain a watching brief on the property market.