Agenda item

To consider the attached report.

Officers advised the Committee that the net return on the Fund’s investments for the quarter to 30 June 2014 was 1.7%. This represented a performance in line with the combined tactical benchmark and an under performance of -1.3% against the strategic benchmark.

The overall net return for the year to 30 June 2014 was 9.2%. This represented an out performance of 1.1% against the annual tactical combined benchmark and an out performance of 0.7% against the annual strategic benchmark.

1.    Hymans Robertson (HR)

·         Market Summary

o   The UK economy continued to recover, with the Office for National Statistics announcing that revised data scheduled to be released in September 2014 would show the UK’s GDP had already passed its pre-recession peak. The unemployment rate fell over the three months to May 2014, now standing at 6.5%. As economic news flow continues to be positive, the Bank of England Governor, Mark Carney, announced over the quarter that the Bank may start raising interest rates by the end of the year. Credit ratings agency S&P also upgraded the UK’s rating outlook from negative to stable.

o   Over the quarter, Sterling appreciated against the US dollar, Euro and Yen. For the first time since January 2009, the $/£ exchange rate reached $1.70/£. In Sterling terms, Emerging Markets were best performing region for equities (5.0%) over the quarter with all other regions also delivering positive absolute performance. Conventional and index-linked gilts remained in positive territory as long-dated yields fell, returning 2.3% and 1.1% respectively. Credit spreads continued to narrow, resulting in corporate bonds returning 2.0% over the quarter. Property also continued to post strong returns.

·         Fund Performance

o   Assets were valued at £516.3m as at 30 June 2014, an increase of £12.2m over the quarter. The total return on the Fund’s assets over the quarter was 1.7%.

o   Performance from the Fund’s active equity manager, Baillie Gifford, detracted from performance as the mandate underperformed its benchmark by 2.2%. Performance from the Multi-asset mandates was mixed with the Baillie Gifford DGF outperforming their target, whilst Barings DAAF and the Ruffer Absolute funds both underperformed their respective benchmarks.

·         Investment manager changes

o   Following the quarter end, Barings had announced the departure of Percival Stanion (head of the Global Multi-Asset group and lead portfolio manager for the DAA Fund) together with Andrew Cole and Shaniel Ramjee, two other members of the team. Following this, Hymans Robertson had changed their rating of the DAA Fund to “1”- Sell immediately and had advised the Fund to disinvest. Disinvestment was made on the 29 August 2014 dealing date.

o   UBS had announced that the proposed governance changes for the Triton Fund had been overwhelmingly approved by investors at EGMs held in early June and accordingly, the proposed changes had been implemented. UBS had also announced that John Murnaghan, Assistant Portfolio Manager for Triton had resigned, leaving UBS in August. He would be replaced in this role by Jonathan Hollick, an existing member of the team.

·         Asset Allocation

o   As at the quarter end, the Fund’s direct allocation to equity assets had been slightly overweight target at 26.0%. On a look-through basis, the allocation to equity assets was 45%. The Fund had an overweight allocation to cash as c. £11.6m was invested in the SSgA Liquidity Fund pending allocation to a local infrastructure project.

2.    Royal London Asset Management (RLAM)

Paul Rayner, Head of Government Bonds and Fraser Chisholm, Client Relationship Director, Strategic Partnerships attended the meeting to give a presentation on the performance of the conventional/index linked gilts and conventional credit bonds mandate.

At the time the report had been prepared the fund value (at 30 June 2014) stood at £101.87m, by 19 September the value stood at £106.07m. We were advised that during quarter 2 Royal London had out-performed the benchmark in all four asset classes. Since the exception of the mandate Royal London had exceeded the benchmark by 0.74%, just -0.01% relative to the objective.

We thanked Royal London for their presentation.

3.    UBS Triton Property Fund (UBS)

Howard Meaney, Head of Global Real Estate – UK (GRE – UK) and Portfolio Manager, UBS Triton Property Fund attended the meeting to give a presentation on the performance of the property mandate.

As at 30 June 2014 the mandate had out-performed the All Balanced Fund Index over the last 3 months (6.1% compared to 4.3%), last 6 months (9.6% compared to 7.7%) and last 12 months 17.8% compared to 15.1%).  Since inception the fund had under performed by 0.3% (7.0% compared to 7.3%)

We thanked Howard for his presentation and his insight into the Fund’s future strategy.

4.    Miscellaneous

We have discussed the possibility of changing the benchmark for Royal London.  HR indicated that he was already in discussion with Royal London as to the best way forward.