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Agenda item

Pooling Investments in Wales

To provide Committee Members with an update on implementation of Pooling Investments in Wales and to agree the response to the MHCLG consultation on Statutory Guidance on Asset Pooling.

Decision:

(a)  That the Committee noted the report and discuss progress being made by the Wales Pension Partnership.

 

(b)  The Committee agreed that the WPP can participate in Stock Lending following a vote where five out of seven members agreed with the recommendation.  It was further resolved that the concerns of the Committee are fed back to the WPP with the requirement that the stock lending should be closely monitored. 

 

(c)  The Committee discussed the informal consultation response and delegated agreed changes to be made by the Clwyd Pension Fund Manager.

 

Minutes:

Mr Latham presented this item of the agenda which covered four key areas; responsible investment, stock lending, statutory guidance and a general update on pooling:

 

·         Responsible investment – currently the Fund has a sustainability policy within the ISS. There is a training session for the Committee on 20 March to discuss what the Fund currently does in terms of responsible investment and also what best practice was in this area. It will also include a session on what the WPP is doing in this area.

 

Mr Latham directed the Committee to page 117 and noted that at a national level, more guidance is expected from the SAB on responsible investment. The main purpose is to provide guidance on what the pool’s should be doing as they should be able to deliver the responsible investment policies of all funds. This can be tricky as each fund may have its own policy and they could be quite different. 

 

The WPP is developing a Pool responsible investment policy which is being drafted by Hymans as the advisor. Hymans have produced a questionnaire to gather the investment beliefs of the Funds within the pool on responsible investment. Hymans want two responses, one from an officer point of view and one from the Chair of the Committee based on the views of the Committee.

 

Cllr Jones commented that he would prefer the officers responding by the deadline as they better understand responsible investment, however he suggested that the Committee should respond after the training session on 20th March when they have more understanding. Mr Everett and the Committee agreed with this proposal.

 

·         Stock lending – Mr Latham discussed the recommendation to allow the WPP to participate in stock lending. Either all eight funds within the WPP agree to it or it does not go ahead. Six of the funds have already been through their Committees and they agreed to allow it. The other funds have a lot of equity and stock lending will therefore have a bigger impact. This is low impact for Clwyd Pension Fund as they only have a 4% allocation to global equities, meaning the expected income will be £25,000 p.a from stock lending.

 

Mr Latham informed the Committee that stock lending is when an investor lends out a stock to a third party so they have ownership over a period of time and in return they pay a fee to the lender. The lender receives collateral in the event of failure of the borrower.  The WPP as a whole will get approximately £1m in terms of income. However, the investor loses their voting rights. To partly mitigate this the WPP can hold back 5% of shares in each stock to retain the vote.

 

Cllr Mullin asked if there are any real risks for the Committee to worry about. Mr Latham noted that there are some risks in extreme circumstances.  For example, during a financial crisis or extreme events because it is difficult to recover the stock quickly. However, those that chose not to call back the stocks did not see many losses. Mr Latham confirmed that he is not aware of many other real issues with stock lending.

 

Cllr Bateman asked what the collateral would be. Mr Latham confirmed that this is usually cash assets or fixed income assets which are paid if they fail to give the stock back.

 

Mr Hibbert questioned whether this would be low impact for the Fund. Mr Hibbert raised concerns regarding the potential short term fluctuations in assets due to the conscious movement of stocks by investors using stock lending, which could cost a lot more than the potential gain of £25,000 from participating in stock lending within the pool. He agreed that in the long term there could be a positive return but raised concerns about the short to medium term impact on the Fund. Mr Latham highlighted that there is no evidence that taking part will drive down the value of stocks.

 

Mr Harkin agreed with both points and noted that the pool should have a written policy on how stock lending will work to minimise the chance of the scenario Mr Hibbert had raised.

 

·         Informal consultation on statutory guidance – Mr Latham confirmed that a response was drafted to the consultation, taking on board views from the advisors and Mr Everett. The overall tone is that the Committee agree with pooling and would like to gain from the benefits but that pooling may not always be the answer. The consultation closes on 28th March 2019 but Mr Latham asked the Committee to agree to the consultation response at today’s meeting.

 

·         General update on the WPP – Mr Latham, confirmed that they have now transitioned the global assets into the pool and can now measure the cost or saving of this using figures from the transition manager. Mr Latham noted that the last JGC meeting was deferred due to bad weather and the next meeting will now be 27th March 2019. Therefore, the fixed income recommendation will not be included until the June committee now. The transition will now be post June 2019.

 

·         Mrs McWilliam highlighted that the Fund will need to ensure that appropriate reporting is received from the pool in relation to any assets that are transitioned and it is important this provides the level of detail officers and the Committee need and are currently used to receiving from JLT.

RESOLVED:

 

(a)  That the Committee noted the report and discuss progress being made by the Wales Pension Partnership.

 

(b)  The Committee agreed that the WPP can participate in Stock Lending following a vote where five out of seven members agreed with the recommendation.  It was further resolved that the concerns of the Committee are fed back to the WPP with the requirement that the stock lending should be closely monitored. 

 

(c)  The Committee discussed the informal consultation response and delegated agreed changes to be made by the Clwyd Pension Fund Manager.

 

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