Pension Sub-committee And Pension Board - 16/11/2005

At a MEETING of the SUPERANNUATION INVESTMENT SUB-COMMITTEE of the FINANCE COMMITTEE held at Dundee on 16th November, 2005.

Present:-

Bailies

Charles D P FARQUHAR

Neil I C POWRIE

Councillors

Fraser MACPHERSON

Joe MORROW

Nigel DON

In attendance

Mr Willie GOWANS, Tayside Full-time Trade Union Officers' Group

Mr Geoff SINGLETON, Hymans Robertson

Councillor MACPHERSON, in the Chair.

The minute of meeting of this Sub-Committee of 17th August, 2005 was noted.

Unless marked thus * all items stand delegated.

I INVESTMENT IN TOBACCO

There was submitted Report No 672-2005 by the Depute Chief Executive (Finance) reviewing the opinion of Senior Counsel regarding whether or not the Sub-Committee had the power to withdraw its investments in tobacco companies.

A report to the Sub-Committee on 23rd February, 2005 reviewed the Fund's current exposure to tobacco products with a view to the likely impact of withdrawing from these investments. The Fund's investments consultants, Hymans Robertson, produced an opinion that investment decisions should be made on financial interest only. It had been agreed that the Sub-Committee should seek Counsel opinion on this matter to ensure the correct legal decision was made.

Counsel's opinion was that under current regulations only financial interest should be taken into account in making investment decisions. Local Government Pension Scheme management rules stated that funds had to be run in the best interests of the beneficiaries and therefore the aim of investment should be to achieve the best return - the only reason for getting rid of tobacco holdings would be if it was in the Fund's financial interests.

The Depute Chief Executive (Finance) pointed out that if the Sub-Committee wish to take social, environmental and ethical interests into account the regulations would need to be amended.

The Sub-Committee approved the following recommendations:-

(a) to note the Counsel's opinion;

(b) to continue to comply with the overriding objective of preserving the Funds in the financial best interests of the members;

(c) to agree that the Depute Chief Executive (Finance) should write to the appropriate Scottish Executive Minister asking for new or clearer legislation enabling administering authorities to take social, environmental and ethical issues into account and requesting a meeting with the Minister and Elected Members.

In addition, it was further agreed that the matter be placed before the relevant City Council committee for information and noting.

II SOCIALLY RESPONSIBLE INVESTMENT - SIX MONTHLY REPORT

There was submitted Report No 673-2005 by the Depute Chief Executive (Finance) reviewing the progress by the Fund Managers regarding the positive engagements strategy approved by the Sub-Committee on 23rd February, 2000.

The Sub-Committee noted the information contained in the report with regard to activities of the Fund Managers during the six month period ended 30th September, 2005.

The Committee resolved under Section 50(A)(4) of the Local Government (Scotland) Act 1973 that the Public and Press be excluded from the meeting for the undernoted items of business on the grounds that they involved the likely disclosure of exempt information as defined in Paragraphs 4, 6 and 11 of Part 1 of Schedule 7A of the Act.

III TAYSIDE SUPERANNUATION FUNDS

(a) PERFORMANCE SUMMARIES

There was submitted Report No 674-2005 by the Depute Chief Executive (Finance) reviewing the investment performance of the Main Fund's four Fund Managers (excluding Property) for the quarter to 30th September, 2005. A report also considered the performance of the Transport Fund which shared two of the Managers. The report compared investment performances of the Fund with the Fund's specific benchmarks which consisted of various stock market indices.

The Sub-Committee noted that three Fund Managers had outperformed the benchmark for the quarter to 30th September, 2005 with one Fund Manager slightly underperforming the benchmark. The Transport fund had outperformed the benchmark. All four Fund Managers had outperformed the benchmarking for the year to 30th September, 2005 and the Transport Fund had also outperformed the benchmark for the year to 30th September, 2005. The report also incorporated the Fund Managers' performance for the three year period to 30th September, 2005.

The Sub-Committee noted the information contained in the report with regard to the performance of the Tayside Superannuation Fund and the Tayside Transport Superannuation Fund and their Fund Managers.

(b) PERFORMANCE SUMMARIES (PROPERTY PORTFOLIO)

There was submitted Report No 675-2005 by the Depute Chief Executive (Finance) reviewing the investment performance of the Property Portfolio managed by Schroder Property Investment Management Limited for the quarter to 30th September, 2005 and for the twelve month period to the same date. The report compared investment performance with an appropriate benchmark from April 2004.

The total portfolio had outperformed the benchmark for the quarter to 30th September, 2005 and also for the twelve months and three year periods to 30th September, 2005. It was noted that the holding in Schroder Exempt had been further reduced - the Depute Chief Executive (Finance) noted that this holding was unlikely to reduce much further.

The Sub-Committee noted the information contained in the report with regard to the performance of the Property Portfolio managed by Schroder Property Investment Management Limited.

The Chief Exchequer Officer pointed to the increased valuation of the Main Fund over the period.

Mr Gowans queried whether the asset valuation showed that the Fund was in a more healthy position than equivalent English funds. Given that it was, would it be possible for Scottish funds to be excluded from the current review of the Local Government Pension Scheme? The Depute Chief Executive (Finance) stated that COSLA had raised this issue and a response was awaited.

The Sub-Committee noted the information contained in the report.

IV TRADING COST ANALYSIS

There was submitted Agenda No AN450-2005 seeking the Sub-Committee approval to appoint of Tradeshare for a one year pilot period. The appointment would be reviewed at the end of the period.

The Sub-Committee approved the appointment.

The Convener asked that a report be prepared for the Sub-Committee after the one year period advising the outcome of the exercise.

V REVIEW OF PERFORMANCE

Geoff Singleton of Hymans Robertson spoke to the report circulated to members. He reviewed the performance of the Funds and the individual managers over the last year - his report was very positive with only one or two minor areas of disappointment noted. The next actuarial valuation would be carried out shortly.

The Convener thanked Mr Singleton for his review of performance.

VI PRESENTATION

John Carson, Tom Wright and Kenneth Bell of Baillie Gifford gave a presentation. Tom reviewed the Fund Manager's performance over the past year pointing out that strong returns in China and USA had been partially off-set by underperformance in UK equities. The UK position would remain much the same due to weak consumer spending and the slow down in the housing market. John took a positive view of investment prospects with low interest rates continuing. Corporate profits growth was slowing. Kenneth outlined Baillie Gifford's approach on corporate governance and socially responsible investment issues and gave practical examples of engagement.

The Convener thanked the speakers for their presentation.

FRASER MACPHERSON, Convener.

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