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Investment Report
Work relating to the updated funding and long term investment strategy which stemmed from the 2004 actuarial valuation has been completed. Nevertheless, the Investment Panel remained proactive during the year under review, concentrating on the implementation of the revised guidelines and benchmarks, actively monitoring all aspects of the Pension Fund in accordance with best practice and setting the Fund's tactical asset allocation policy.
Tactical asset allocation involves decisions as to how the Fund's assets, together with the new money coming into the Fund from dividends and net contributions, should be distributed within the various categories of investment around the world. The Panel carries out this process at its quarterly meetings in conjunction with the Fund's two external investment advisers and takes into account global financial market and economic views from a wide range of sources. In addition, the Panel monitors the day to day activity and performance of the in-house investment managers and receives reports from them on their investment transactions and on their own views of individual markets going forward.
The Panel has set targets for investment returns in excess of benchmark levels. It has also set targets for the contribution to these excess returns both from asset allocation decisions and from the selection of individual investments. Benchmarks and target returns are consistent with the Panel's overall funding policy and long term investment strategy. Quarterly investment performance is measured independently by the WM Company and for the 12 months to 31 December 2006 all targets were comfortably beaten.
Although relatively modest, the Fund has a growing exposure to 'alternative investments'. Currently these include property, absolute return funds, private equity and venture capital. They are designed to provide a wider degree of diversification for the Fund since the returns from these sources are somewhat independent of the returns from traditional stock market investments. As such they contribute towards the Investment Panel's funding strategy through the provision of greater stability and reduced volatility.
During the year the Panel enhanced significantly its monitoring of 'alternative assets'. As a result, an additional two day annual Panel meeting has been introduced specifically to interview the Fund's larger private equity managers and all its fund of hedge fund managers. The Panel also arranged for regional private equity managers to report direct to the Panel at a specific quarterly meeting on an annual basis and for the Director of the WYPF together with the two external advisers to conduct an annual interim review of the fund of hedge fund managers. The Panel is also actively exploring ways to devote additional resources 'in house' to this increasingly important investment area.
As part of the Panel's ongoing monitoring role, the Statement of Investment Principles and the Business Plan were reviewed and updated and the Funding Strategy Statement was reassessed in the light of changed stock market and actuarial conditions. These, and other, documents are available on the WYPF web site. Furthermore, an extensive review and tendering exercise was undertaken to re-evaluate the service level and value which the Fund receives from its stockbrokers, as a result of which a number of changes took place.
The Panel approved a new Treasury Policy Statement and reviews the terms and maturities of the Fund's extensive cash and money market deposits at each of its meetings. The opportunity was taken to join with other Local Authority schemes to seek the recovery of withholding tax on European dividends following a European Court ruling. The Panel is also exploring the potential to obtain compensation from US companies which may have committed 'corporate wrongdoing'.
The overall governance of the Fund was given further consideration by the Investment Panel during the year. The Panel produced its Governance Policy Statement in accordance with Local Government regulations. It also recommended an increase in representation on the Panel by the addition of two Scheme members. The recommendation was accepted by Bradford Council's Audit and Staffing Committee. Mindful of the need for transparency, the Panel once again hosted open meetings for employers and for Scheme members in October; this year being Bradford's turn.
Further work on governance and representation is now being carried out in the light of guidance from the CIPFA Pensions Panel following a subsequent discussion paper from the Department for Communities and Local Government on the subject. In consequence, the Panel has put forward a range of additional Investment report 43 44 recommendations covering the legal responsibilities and the composition and operation of the various groups involved in the administration of the Fund.
Also on the subject of governance, the Panel has continued to take its responsibilities as socially responsible shareholders seriously. Voting rights were exercised in respect of UK, European and US companies, where possible, and details of all resolutions which were opposed or abstained were tabled at each quarterly meeting. A special resolution relating to the workplace human rights policy of one of the Fund's UK equities was supported, following which the Panel instituted a formal procedure for dealing with such issues in future.
The Panel continued to be closely associated with the work of the Local Authority Pension Fund Forum of which Councillor Ian Greenwood is Deputy Chair and Stuart Imeson is Honorary Secretary. The Forum is a leader in the field of socially responsible investment, including matters relating to climate change. The Panel has agreed that WYPF should become a signatory to the 2007 Carbon Disclosure Project through which major global enterprises will be lobbied to disclose information on emissions.
Members of the Panel have attended conferences organised by the Forum, and indeed by other organisations, as part of a training environment designed to maintain a high level of expertise. Furthermore, a bespoke training seminar, led by an independent training consultant, was organised by WYPF in the autumn.
Whilst the Panel takes a genuinely long term view of its investment strategy, it nevertheless monitors investment performance and related issues carefully in the meantime. In the 12 months to 31 December 2006 (the latest period for which WM Company figures are available) the investment portfolio achieved a return of 13.1% compared to the benchmark return of 10.9%. The Fund's return was 1.8% ahead of the average Local Authority pension fund's return for the period and ahead over 3 and 5 year periods by 0.9% per annum and 0.5% per annum respectively. It is, perhaps appropriate to reiterate that past performance is not necessarily a guide to the future. However, it is equally appropriate to mention that during the year the WYPF received a number of awards from 'Local Government Finance' namely: 'Fund of the Year (Large Funds)' and 'Best Returns on Total Equities for the 3 year period to 30 September 2006'. Stuart Imeson (Director WYPF) was voted 'Best Investment Officer of the Year'.
On the subject of people, it must be recorded that the Fund suffered a great loss as a result of the sudden death of Councillor Tom McElroy in December. He was one of the longest serving Panel members and was an enthusiastic supporter of the Fund and its activities. He will be sadly missed. Also missed will be Malcolm Hardy, Vice Chair of the Panel who decided to retire after 15 years continuous service.
Looking ahead to 2007/08, the results of the next triennial actuarial valuation will be revealed and the issues of funding and investment strategy will once again come to the fore against a background of continuous change and uncertain financial markets. The West Yorkshire Pension Fund remains well placed to meet these challenges.
Work relating to the updated funding and long term investment strategy which stemmed from the 2004 actuarial valuation has been completed. Nevertheless, the Investment Panel remained proactive during the year under review, concentrating on the implementation of the revised guidelines and benchmarks, actively monitoring all aspects of the Pension Fund in accordance with best practice and setting the Fund's tactical asset allocation policy.
Tactical asset allocation involves decisions as to how the Fund's assets, together with the new money coming into the Fund from dividends and net contributions, should be distributed within the various categories of investment around the world. The Panel carries out this process at its quarterly meetings in conjunction with the Fund's two external investment advisers and takes into account global financial market and economic views from a wide range of sources. In addition, the Panel monitors the day to day activity and performance of the in-house investment managers and receives reports from them on their investment transactions and on their own views of individual markets going forward.
The Panel has set targets for investment returns in excess of benchmark levels. It has also set targets for the contribution to these excess returns both from asset allocation decisions and from the selection of individual investments. Benchmarks and target returns are consistent with the Panel's overall funding policy and long term investment strategy. Quarterly investment performance is measured independently by the WM Company and for the 12 months to 31 December 2006 all targets were comfortably beaten.
Although relatively modest, the Fund has a growing exposure to 'alternative investments'. Currently these include property, absolute return funds, private equity and venture capital. They are designed to provide a wider degree of diversification for the Fund since the returns from these sources are somewhat independent of the returns from traditional stock market investments. As such they contribute towards the Investment Panel's funding strategy through the provision of greater stability and reduced volatility.
During the year the Panel enhanced significantly its monitoring of 'alternative assets'. As a result, an additional two day annual Panel meeting has been introduced specifically to interview the Fund's larger private equity managers and all its fund of hedge fund managers. The Panel also arranged for regional private equity managers to report direct to the Panel at a specific quarterly meeting on an annual basis and for the Director of the WYPF together with the two external advisers to conduct an annual interim review of the fund of hedge fund managers. The Panel is also actively exploring ways to devote additional resources 'in house' to this increasingly important investment area.
As part of the Panel's ongoing monitoring role, the Statement of Investment Principles and the Business Plan were reviewed and updated and the Funding Strategy Statement was reassessed in the light of changed stock market and actuarial conditions. These, and other, documents are available on the WYPF web site. Furthermore, an extensive review and tendering exercise was undertaken to re-evaluate the service level and value which the Fund receives from its stockbrokers, as a result of which a number of changes took place.
The Panel approved a new Treasury Policy Statement and reviews the terms and maturities of the Fund's extensive cash and money market deposits at each of its meetings. The opportunity was taken to join with other Local Authority schemes to seek the recovery of withholding tax on European dividends following a European Court ruling. The Panel is also exploring the potential to obtain compensation from US companies which may have committed 'corporate wrongdoing'.
The overall governance of the Fund was given further consideration by the Investment Panel during the year. The Panel produced its Governance Policy Statement in accordance with Local Government regulations. It also recommended an increase in representation on the Panel by the addition of two Scheme members. The recommendation was accepted by Bradford Council's Audit and Staffing Committee. Mindful of the need for transparency, the Panel once again hosted open meetings for employers and for Scheme members in October; this year being Bradford's turn.
Further work on governance and representation is now being carried out in the light of guidance from the CIPFA Pensions Panel following a subsequent discussion paper from the Department for Communities and Local Government on the subject. In consequence, the Panel has put forward a range of additional Investment report 43 44 recommendations covering the legal responsibilities and the composition and operation of the various groups involved in the administration of the Fund.
Also on the subject of governance, the Panel has continued to take its responsibilities as socially responsible shareholders seriously. Voting rights were exercised in respect of UK, European and US companies, where possible, and details of all resolutions which were opposed or abstained were tabled at each quarterly meeting. A special resolution relating to the workplace human rights policy of one of the Fund's UK equities was supported, following which the Panel instituted a formal procedure for dealing with such issues in future.
The Panel continued to be closely associated with the work of the Local Authority Pension Fund Forum of which Councillor Ian Greenwood is Deputy Chair and Stuart Imeson is Honorary Secretary. The Forum is a leader in the field of socially responsible investment, including matters relating to climate change. The Panel has agreed that WYPF should become a signatory to the 2007 Carbon Disclosure Project through which major global enterprises will be lobbied to disclose information on emissions.
Members of the Panel have attended conferences organised by the Forum, and indeed by other organisations, as part of a training environment designed to maintain a high level of expertise. Furthermore, a bespoke training seminar, led by an independent training consultant, was organised by WYPF in the autumn.
Whilst the Panel takes a genuinely long term view of its investment strategy, it nevertheless monitors investment performance and related issues carefully in the meantime. In the 12 months to 31 December 2006 (the latest period for which WM Company figures are available) the investment portfolio achieved a return of 13.1% compared to the benchmark return of 10.9%. The Fund's return was 1.8% ahead of the average Local Authority pension fund's return for the period and ahead over 3 and 5 year periods by 0.9% per annum and 0.5% per annum respectively. It is, perhaps appropriate to reiterate that past performance is not necessarily a guide to the future. However, it is equally appropriate to mention that during the year the WYPF received a number of awards from 'Local Government Finance' namely: 'Fund of the Year (Large Funds)' and 'Best Returns on Total Equities for the 3 year period to 30 September 2006'. Stuart Imeson (Director WYPF) was voted 'Best Investment Officer of the Year'.
On the subject of people, it must be recorded that the Fund suffered a great loss as a result of the sudden death of Councillor Tom McElroy in December. He was one of the longest serving Panel members and was an enthusiastic supporter of the Fund and its activities. He will be sadly missed. Also missed will be Malcolm Hardy, Vice Chair of the Panel who decided to retire after 15 years continuous service.
Looking ahead to 2007/08, the results of the next triennial actuarial valuation will be revealed and the issues of funding and investment strategy will once again come to the fore against a background of continuous change and uncertain financial markets. The West Yorkshire Pension Fund remains well placed to meet these challenges.
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