Transcript Document

Secure your
future today
Save early and prepare for the
retirement lifestyle you want.
Matthew Trebilcock
Pension Investment Manager
Agenda
• Investment Strategy
• Employer Asset Tracking
• Governance
Investment Strategy
Investment Strategy
Broad objectives of
any pension fund
•
Ensure that sufficient and appropriate resources are available to meet all
pension liabilities as they fall due
•
Achieve real investment returns in the medium and long term consistent with
the assumptions of the latest actuarial valuation
•
Maximise the potential returns from investments within reasonable risk
parameters
•
Constrain the pension fund’s costs to the greatest extent possible – both in
terms of the absolute value and their volatility
Investment Strategy
Impact of decisions
Order of decision process
Key investment decisions for the investment of any pension fund
Strategic Asset Allocation –
Growth/Bond Split
Asset Class Allocation and Benchmarking
Style/Structure of Management
Selection of
Managers
Degree of financial significance
Investment Strategy
Setting investment
strategy
Two potential
objectives
of investment
strategy:
Generate
return
Reduce risk
Investment Strategy
Meeting the objectives
Aim to generate excess
long-term returns
Growth seeking
assets
(risk assets)
By Investing in
two
broad categories
of assets :
Not matched to liabilities
Diversification
Liability
matching
assets
(risk reducing
assets)
Aim to match changes in
liabilities
Inflation
Interest rate
Investment Strategy
Agreed asset allocation
Assets
Pre-transition
strategy %
Strategy as at
31 December 2014
%
Post–transition
strategy
%
Global Equities
62

39.7

15
Emerging Market
Equities
0

4.7

5
0


5
0
7
1
4
5
5






4.9
12.6
7.2
1.0
1.3
4.4
0.8






12
10
10
8
5
-
Liability Driven
Investment
0

8.6

20
Corporate Bonds
Gilts
8
8


14.8
0.0


10
0
Frontier Market
Equities
Diversified Growth
Property
Infrastructure
Hedge Funds
Private Equity
Cash & Other
Total
100
100
100
Investment Strategy
Performance
• Fund Value: £1,499,313,855.00
Performance to 31 January 2015
10
8
6
4
2
0
Three months
One Year
Three Years
Five Years
-2
Fund
Benchmark
Excess Return
Employer Asset Tracking
Employer Asset Tracking
Employers are a diverse group
Term
No actives
Maturity
Security
Guarantor
Size
Closed to
new entrants
Planning to
exit
Funding level
Employer Asset Tracking
We need….
Employer Asset Tracking
How do LGPS Funds track assets?
We don’t track weekly, monthly or
annually. Employer asset shares are only
calculated at the triennial valuation.
Assets are not calculated by addition and
subtraction of cashflows and investment
return.
Employer Asset Tracking
How do LGPS Funds track assets?
Deficit at 2010 valuation
(£100m)
Investment profit
+£20m
Salary loss
(£5m)
Ill-health profit
+£10m
Mortality loss
(£20m)
Share of miscellaneous
(£10m)
Deficit at 2013 valuation
(£105m)
Assets at 2010 valuation
Liabilities at 2013 valuation
£500m
Deficit at 2013 valuation
(£105m)
Assets at 2013 valuation
£395m
Actuarial analysis used to calculate assets at triennial valuation
Employer Asset Tracking
Limitations of analysis of surplus
•
Not auditable or explainable to employers
•
Dependent on liability data
•
Not all data required is available
•
Uses fund averages which may not be appropriate for all employers
•
Assets only calculated accurately once every 3 years
•
Need an actuary to calculate assets
•
Can’t be easily automated
Not robust enough for the LGPS of today
Employer Asset Tracking
Move to a unitisation approach
•
•
•
•
•
Assets at 1 December
£650k
December investment return 2%
Contributions received
£40k
Benefit outgoings of
£30k
Cash flow approach gives position at 31 December of
650 x 1.02 + (40 – 30)
•
•
•
•
•
=
£673k
Assets at 1 January
£673k
January investment return
-1.5%
Contributions received
£32k
Benefit outgoings of
£34k
Cash flow approach gives position at 31 January of
673 x -1.015 + (32 – 34)
Simple and transparent
=
£660.91k
Employer Asset Tracking
How does employer asset tracking work?
Each employer
allocated a notional
asset share (units)
A monthly asset
statement is created
for each employer
Changes in asset
values are reflected in
changes in the unit
price
Net employer cash
flows are calculated
every month and units
are bought or sold
Employer Asset Tracking
How does employer asset tracking work?
Current Method
Reduces cross subsides across employers
Increases efficiency
Auditable and transparent
Simple and easy to understand
Ability to automate asset calculations
Need for complex actuarial calculations
The asset tracking approach is robust and flexible
HEAT
Governance
Governance
Current LGPS governance structure
HM Treasury
Responsible Authority
(Secretary of State for DCLG)
Administering Authority
(Scheme Manager –Cornwall Council)
Pension Committee
s.101 Responsibility
Officers
(s.101 & s.151 responsibilities)
Governance
Future LGPS governance structure
HM Treasury
Responsible Authority
(Secretary of State for DCLG)
tPR
(codes of practice on governance,
administration, etc.)
National Scheme
Advisory Board
Administering Authority
(Scheme Manager –Cornwall Council)
Pension Board
Pension Committee
s.101 Responsibility
Officers
(s.101 & s.151 responsibilities)
Governance
Formation of Pension Board
Pension Board
• Assist the Scheme Manager in securing compliance
with:
• Pension regulations
• Legislation relating to governance and
administration
• Pension Regulator’s requirements e.g. CoP
• To ensure effective and efficient governance and
administration
Governance
Pension Regulators CoP
• Governing your scheme
• Conflicts of interest
• Information to be published about schemes
• Managing risks
• Internal controls
• Administration
• Scheme record-keeping
• Maintaining contributions
• Information to be provided to members
• Resolving issues
• Internal dispute resolution
• Reporting breaches of the law
Governance
Cornwall Local Pension Board
• Membership
• 2 Employee representatives and 2 Employer representatives
• non-voting Independent Chair
• open and transparent appointment process open to all employees
and employers
• LPB members will:
• disclose all potential conflicts of interest
• commit to attend the LPB meetings (minimum 2 per year)
• commit to undertake and attend necessary knowledge and
understanding training
• Undertake to abide by the LPB terms of reference
Effective from 1 April 2015
Thank you
Find out more:
www.cornwallpensionfund.org.uk
E [email protected]