GREATER MANCHESTER PENSION FUND ADVISORY PANEL. 11 July 2014

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1 Commenced: 10.00am Present: Apologies for Absence: GREATER MANCHESTER PENSION FUND ADVISORY PANEL Councillor K Quinn (Chair) 11 July 2014 ITEM NO: 4(a) Terminated: 12.30pm Councillors: Akbar (Manchester), Francis (Bolton), Halliwell (Wigan), Houle (Oldham), Brett (Rochdale), Mitchell (Trafford), Pantall (Stockport), Pennington (Salford) Employee Representatives: Mr Llewellyn (UNITE), Mr Mulryan (UNITE), Mr Rayner (UNISON) and Mr Thompson (UCATT) Advisers: Mr Bowie and Mr Hemingway Councillor Grimshaw and Mr Schofield (GMB) 1. DECLARATIONS OF INTEREST There were no declarations of interest submitted by Members. 2. CHAIR S OPENING REMARKS The Chair welcomed everyone to the meeting, particularly new Member; Councillor Allen Brett representing Rochdale MBC. He further announced that Richard Sydee was leaving the MoJ and would be replaced on the Panel by Audrey Fullerton. He thanked Richard for his work with the Pension Fund and wished him well for the future. 3. MINUTES The Minutes of the proceedings of the meeting of the Pension Fund Advisory Panel held on 7 March 2014 were signed as a correct record. The Minutes of the proceedings of the meeting of the Pension Fund Management Panel held on 7 March 2014 were signed as a correct record. The Minutes of the proceedings of the meeting of the Urgent Matters Panel held on 16 April 2014 were signed as a correct record, subject to the following: That Minute 3, Resolution (a), read as follows: The construction of a new Pension Fund Building be procured through the Council s Strategic Infrastructure Partner, Tameside Investment Partnership, in accordance with existing contractual arrangements at a cost of 7.73 million to be met by the Greater Manchester Pension Fund.

2 4. LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT 1985 (a) Urgent Items The Chair announced that there were no urgent items for consideration at this meeting. Exempt Items RESOLVED That under Section 100 (A) of the Local Government Act 1972 the public be excluded for the following items of business on the grounds that: (i) they involve the likely disclosure of exempt information as defined in the paragraphs of Part 1 of Schedule 12A of the act specified below; and (ii) in all circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information for reasons specified below: Items Paragraphs Justification 7(h), 10, 11, 12, 14, 15, 16 & 18 3&10, 3&10, 3&10, 3&10, 3&10, 3&10, 3&10, 3&10 Disclosure would or would be likely to prejudice the commercial interests of the Fund and/or its agents, which could in turn affect the interests of the beneficiaries and/or tax payers. 5. PENSIONS ADMINISTRATION WORKING GROUP The Minutes of the proceedings of the meeting of the Pensions Administration Working Group held on 11 April 2014 were considered. (i) That the Minutes be received as a correct record; (ii) With regard to Minute 25, Budget 2014 Pensions and Savings, that the Executive Director of Pensions submit a response to the Consultation following consultation with the Chair of the Working Group; and (iii) With regard to Minute 27, the Pension s Regulator s draft Code of Practice No: 14 Governance and Administration of Public Service Pension Schemes, that the actual code, (when published), be examined to ensure that GMPF practices are in full compliance; and written procedures be prepared regarding reporting breaches of the law. 6. ETHICS AND AUDIT WORKING GROUP The Minutes of the proceedings of the meeting of the Ethics and Audit Working Group held on 11 April 2014 were considered. (i) That the Minutes be received as a correct record; (ii) With regard to Minute 36, Risk Management and Internal Audit Services Internal Audit Plan 2014/15, that the Annual Internal Audit Plan for 2014/15, as appended to the report, be approved;

3 (iii) (iv) With regard to Minute 39 - Interim Update on JP Morgan s qualified Audit Assurance reports, that a full report be presented to the next meeting of the Ethics and Audit Working Group; and With regard to Minute 42 Board Diversity, that the LAPFF template letters, as appended to the report, be completed and sent to GMPF s Fund Managers. 7. ALTERNATIVE INVESTMENTS WORKING GROUP The Minutes of the proceedings of the meeting of the Alternative Investments Working Group held on 4 April 2014 were considered. (i) That the Minutes be received as a correct record; (ii) With regard to Minute 21 Private Equity Review of Strategy and Implementation, That: (a) The medium term strategic allocation for private equity be increased to 5% by value of the total Main Fund assets. The target geographical diversification of the private equity portfolio remains as follows:- Geography Target Range EUROPE, inc UK 45% to 50% USA 40% to 45% ASIA 10% to 15% (c) The investment stage diversification of the private equity portfolio remains as follows: Geography Large Buyout Mid Market Buyout Venture/Other EUROPE, inc UK 40% to 45% 15% to 20% 35% to 45% USA 30% to 35% 25% to 30% ASIA 45% to 50% 45% to 50% 0% to 10% (d) (e) (f) The scale of commitment to funds is increased to 200 million per annum, with effect from 1 July 2014, to work towards achievement of the strategy over the next 6 years or so. Commensurate with the increase in the scale of commitment to new funds, the backlog position in new commitments as at 30 June 2014 (likely to be 21 million) is not carried forward into the new commitment plan. The Fund implements the revised private equity strategy via 3 year programmes as detailed below:- Geography EUROPE, inc UK Large Buyout ( m) Mid Market Buyout ( m) Venture/Other ( m) Total Number of Funds 4 - Direct 2 FoF 8/9 5 Direct/FoF USA 3 Direct/FoF 3 - FoF 8/9 ASIA 3 FoF 3 20

4 Geography Large Buyout ( m) Mid Market Buyout ( m) Venture/Other ( m) Total ( m) EUROPE, inc UK 210 USA ASIA (iii) (g) It continues to be recognised that the portfolio may not fall within the target ranges at and (c) above for a number of years, because of transitioning from the previous target ranges; and With regard to Minute 23 Infrastructure Review of Strategy and Implementation, That: (a) The medium term strategic allocation to infrastructure funds is increased to 4% by value of Main Fund assets. (c) The target geographical diversification of the infrastructure portfolio remains as follows:- Geography Target Range EUROPE, inc UK 40% to 60% N AMERICA 30% to 40% ASIA-PACIFIC/OTHER 0% to 20% The split of total portfolio commitments remains as follows:- Investment Stage Relative Risk Target Split PRIMARY/EVERGREEN HIGHER 67% SECONDARY LOWER 33% (d) The scale of new fund commitments is increased to between 65 million million per annum (averaging 95m per annum) across between 2 and 4 new funds per annum (averaging 3 new funds per annum), to work towards achievement of the strategy over the coming years; (e) It continues to be recognised that the portfolio may not fall within the target ranges at and (c) above for a period of years, because of transitioning from the current portfolio composition. 8. PROPERTY WORKING GROUP The Minutes of the proceedings of the meeting of the Property Working Group held on 4 April 2014 were considered. (i) That the Minutes be received as a correct record; and (ii) With regard to Minute 23 Greater Manchester Property Venture Fund, that a site visit for all Members to One St Peter s Square, Manchester, be arranged; and an interim report on progress with regard to Stalybridge West, Tameside, be provided to members of the Working Group. 9. EMPLOYER FUNDING VIABILITY WORKING GROUP The Minutes of the proceedings of the meeting of the Employer Funding Viability Working Group held on 16 April 2014 were considered.

5 (i) That the Minutes be received as a correct record; (ii) With regard to Minute 14 MoJ Funding Update and new Employer Admission Agreements, that the Funding Statement (as appended to the report), to be incorporated in the Memorandum of Understanding, be approved; and that the approach set out in Section 6 of the report regarding the review of process for the approval of admission agreements for new employees of CRCs, be approved; and (iii) With regard to Minute 18 Actuary and Investment Advisor Re-Tender, that subject to there being no adverse or material factors mitigating against the use of a Framework approach, (as opposed to a combined tender), that the Framework approach, as detailed in the report, be approved as a preferred option. 10. BUSINESS DEVELOPMENT WORKING GROUP The Minutes of the proceedings of the meeting of the Employer Funding Working Group held on 22 April 2014 were considered. (i) That the Minutes be received as a correct record; (ii) With regard to Minute 19 Airport City, that quarterly updates on progress be submitted to the Business Development Working Group; (iii) With regard to Minute 21 Update on Investing for Growth, that progress on the Invest for Growth exercise continued to be reported to the Business Development Working Group; and (iv) With regard to Minute 22 GMPF Procurement of a Strategic Partner for Property Development, that agreement be given, in principle, to the search for a strategic partner; that further due diligence be undertaken to determine the viability of the proposal; and that a further report be submitted to the Business Development Working Group and the Property Working Group when the due diligence has been concluded. 11. MoJ PROJECT BOARD The Minutes of the proceedings of the meetings of the MoJ Project Board held on the following dates were considered. 12 March 2014; 15 April 2014; and 12 June That the Minutes of the above meetings be received as a correct record. 12. APPOINTMENTS TO WORKING GROUPS That membership of the Greater Manchester Pension Fund Working Groups for the Municipal Year 2014/15 be as follows: Working Group Ethics and Audit Membership Councillors: Middleton (Chair), Akbar, Mitchell, Pantall, Grimshaw, M Francis, Mr Llewellyn, and Mr Mulryan.

6 Pensions Administration Alternative Investments Property Business Development Employer Funding Viability MoJ Project Board Councillors: Whitley, (Chair), C Francis, M Francis, Grimshaw, Akbar, Middleton, Pantall, Brett, Mr Schofield and Mr Rayner. Councillors: Cooney (Chair), Halliwell, Pennington, Ricci, Brett, Houle, Ward, Ms Baines and Mr Mulryan. Councillors: Taylor (Chair), Halliwell, J Lane, Pennington, J Fitzpatrick, M Smith, S Quinn, Welsh, Whitley, Mr Mulryan and Mr Thompson. Councillors: K Quinn (Chair), Smith, Middleton, Cooney, Taylor, Whitley, Pantall, J Fitzpatrick, Ms Baines. Councillors: J Fitzpatrick (Chair), Buckley, Cooney, Whitley, Houle, Mitchell and Ms Baines. Councillors: K Quinn (Chair), J Fitzpatrick, Taylor, Pantall and Audrey Fullerton 13. APPOINTMENT OF ADVISER Consideration was given to a report of the Executive Director of Pensions explaining that John Hemingway was resigning from his role as an adviser to the Fund, following the meeting today (11 July 2014). The report proposed that Mark Powers be appointed as a replacement adviser. Mr Powers was well known to the Panel, as a former Director at UBS, who managed the Fund s UK equity portfolio and represented UBS at Panel meetings from 2000 until he retired in It was further proposed that consideration be given to the appointment of an additional adviser to broaden the advice given to the Panel. The Chair extended his thanks to Mr Hemingway for all his hard work with the Panel and wished him well for the future. (i) That Mark Powers be appointed as an adviser to the Fund, replacing John Hemingway; and (ii) That further consideration be given to the appointment of an additional adviser to broaden the advice given to the Panel and that a further report be submitted to a future meeting of the Panel with regard to this matter. 14. MINISTRY OF JUSTICE UPDATE Sandra McKie, Project Manager, (Hymans Robertson), delivered a presentation, which updated Members with regard to developments in milestones since the last meeting of the Management Panel as follows: Offender management Regulations in force; Transfer of staff to NPS and CRC s and Members become responsibility of GMPF; Governance documentation in place; Phase 1 of data transfer completed (Actives and Deferreds); and Contribution rates set for NPS and CRCs.

7 It was summarised that progress was excellent and challenges were being dealt with as they arose. All major milestones were being met, however, there was still a lot to do. That the content of the presentation be noted. 15. LGPS UPDATE The Executive Director of Pensions submitted a report, and delivered a presentation, which provided a summary of items that had been issued since the last meeting of the Panel. With regard to the LGPS (Transitional Provisions and Savings), regulations 2014 were made on 5 March 2014 and came into operation on 1 April They provided the bridge that allowed membership in previous versions of the Scheme to count in the new Scheme. The regulations also amended the Scheme so that councillor members must stop contributing to it at the end of their current term of office. This change had been notified to all councillor members. With regard to the Call for Evidence regarding the future structure of the LGPS, it was reported that many of the responses to the call for evidence and Hymans Robertson s analysis suggested that there was considerable scope for savings through a more efficient approach to investment. In particular, significant savings could be achieved by: Moving to passive fund management (where assets were invested to match the performance of a published index) for all listed assets, as the more expensive active management had not historically resulted in outperformance a the aggregate LGPS level; The use of one or more collective investment vehicles in particular for alternative assets such as infrastructure and property, which would provide the necessary economies of scale for efficient investment. Full fund merger could achieve similar savings, but would delay the emergence of benefits and have other implications such as the loss of local control and accountability. DCLG had confirmed that fund merger would not be pursued at the current time and asset allocation would continue to be determined at a local level. It had also decided to allow administration arrangements to settle after the 2014 Scheme changes before considering any further reform in that area. The Fund s draft response was attached to the report. The closing date of the consultation, was 11 July With regard to the draft regulations on scheme governance, on 23 June, DCLG issued draft regulations on new scheme governance arrangements for consultation. The new arrangements were intended to come into force from October 2014 onwards and incorporated fundamental changes to the overview of Fund performance, compliance with the regulations and its decision making. The consultation concluded on 15 August The main provisions were requirements of the Public Service Pension Act. These included a requirement for the Secretary of State to establish a national scheme advisory board to advise him on the desirability of changes to the scheme. Provision was also made for administering authorities to establish local pension boards to assist them with the effective and efficient management and administration of the scheme. A copy of the consultation document was attached to the report. These changes were linked to the Call for Evidence in that the main aim was to raise the standard of management and administration of the LGPS (and other public sector pension schemes). The changes also looked to achieve more effective representation of employer and employee interests

8 in that process. The regulations would come into operation on 1 October 2014, so that the Shadow Board and local pension boards would become operational on 1 April The composition of the Scheme Advisory Board was outlined and the proposed composition of the local pension board and how the costs should be met, was discussed. With regard to the Budget 2014, it was reported that the Government intended to legislate so that with effect from 27 March 2014, various pension related restrictions were eased. These included providing greater scope for commuting trivial pensions into one-off payments. A separate report regarding this would be submitted to the next meeting of the Pensions Administration Working Group. Changes for Defined Contribution Schemes and the lifting of restrictions on how retiring members may choose to draw their pension pots was also highlighted. In respect of Ending of Contracting Out in April 2016, it was reported that members of LGPS and their employers do not contribute towards the State Second Pension. The Scheme is described as being contracted-out of the State Second Pension. Employers National Insurance (NI) contributions were therefore reduced by 3.4% in respect of weekly earnings within the band of 148 to 770. Employee contributions were reduced by 1.4% for the same earnings band. On 6 April 2016, the single tier State Pension would arrive, meaning the end of contracting-out. The LGA estimates that this will cost LGPS employers 800-1,000 million per annum in extra NI contributions. Hymans estimated that the ending of contracting-out would cost employers 2% of pensionable pay. With regard to Fair Deal, a report would be made to the next meeting of the Pensions Administration Working Group. In summary however, revised Fair Deal guidance was issued in October This did not apply to local authorities, who were subject to the Best Value Direction Order (2007). The DCLG affirm that this would also be updated, but at an as yet unspecified date. (i) That the content of the report and presentation be noted; (ii) That the Call for Evidence response be approved as amended at the Panel for submission to the DCLG; (iii) That a response to the Governance Consultation be agreed with the Chair of the Panel following consideration at the Business Development Working Group; and (iv) That the Business Development Working Group consider the timetable and process for establishing a local Board by 1 April QUARTERLY REPORTS OF THE EXECUTIVE DIRECTOR OF PENSIONS (a) Summary Valuation of the Pension Fund Investment Portfolio as at 31 December 2013 and 31 March 2014 A report of the Executive Director of Pensions was submitted, detailing and comparing the market value of the Fund s investment portfolio as at 31 December 2013 and 31 March That the report be noted. Underwriting, Stocklending and Commission Recapture Consideration was given to a report of the Executive Director of Pensions detailing the activity and income generated on Underwriting, Stocklending and Commission Recapture during the quarter.

9 It was reported that income from the Fund s Underwriting, Stocklending and Commission Recapture activities was opportunistic in nature and very sensitive to market conditions. The amounts generated were therefore expected to vary, potentially significantly, from one quarter to another and from one year to another. That the report be noted. (c) External Managers Performance The Executive Director of Pensions submitted a report, which advised Members of the recent performance of the external Fund Managers. It was noted that in the quarter to 31 March 2014, Capital had underperformed by 1.0% against their benchmark index of 0.4%. UBS had outperformed by 0.3% against their benchmark index of 0.3% and Legal and General had broadly succeeded in tracking their benchmark. Performance figures for the twelve months to 31 March 2014 were detailed which showed that Capital had outperformed their benchmark by 1%, UBS had also outperformed their benchmark by 3.6%, and Legal and General had succeeded in tracking their benchmark. That the report be noted. 17. LONG TERM PERFORMANCE 2013/14 MAIN FUND AND ACTIVE MANAGERS Consideration was given to a report of the Executive Director of Pensions which advised Members of the excellent long term results for UBS and the Main Fund as a whole, as measured by WM. Detailed results covering periods up to 25 years were given. The Main Fund was in the top 4% of the Local Authority pension funds surveyed by WM over 15 and 20 years and was the best performing Local Authority fund over the 25 year period. The performance of UBS over their time as a Manager for the Fund had been excellent. Capital International had underperformed their benchmark over 3 and 10 years, and they had outperformed in 2 of the last 3 years. That the report be noted. 18. CASH MANAGEMENT A report was submitted by the Executive Director of Pensions, which explained that the Fund adopted a relatively prudent approach to its cash management. The report outlined the constraints in place to ensure an appropriate level of prudence, focusing primarily on capital preservation and secondly on higher returns. It also detailed the performance achieved last year and over the last three years. The report concluded that the Pension Fund s cash had been generally well managed. Performance in 2013/14 exceeded market returns and total interest received was 2.6 million. That the report be noted.

10 19. LONG TERM PROPERTY PERFORMANCE (IPD REVIEW 2013 ETC) The Executive Director of Pensions submitted a report, which advised Members of the recent and longer term investment performance of the Direct Property Portfolio (managed by the internal Property Investments Unit) and of the Balanced Property Pooled Vehicle Portfolio (managed by the Executive Director of Pensions). Performance in 2013 was 1.7% above the IPD Universe median, 1.1% above the IPD Universe mean and 0.9% above the Pension Fund sub-group average. The out performance in the year was driven by capital growth in the portfolio exceeding the index. Sales activity during the year made a significant contribution to this. Despite strong performance last year, performance over standard time periods up to twenty years was below the IPD index and median. The Fund s direct property holdings had a relatively strong income base and significant work had been undertaken to reduce voids this year. The resurgence in the UK regional markets and renewed investor interest in good quality secondary stock, added to targeted sales of properties that were sold well above the previous valuation, contributed to a year of good performance for the direct and wider property portfolios. Potential erosion of income from lease expiries remained a primary concern for forthcoming years, but the level in the portfolio tracked only marginally above the IPD index for the next few years, before veering away from it during 2018 and onwards. Income security and potential for growth remained inferior compared to the IPD benchmark. Investments in the Balanced Property Pooled Vehicle Portfolio were also detailed. Some of the indirect property holdings were generalist balanced pooled vehicles which had been selected by the Executive Director of Pensions in order to increase the overall exposure of the Fund to property. The investments held as part of the balanced property pooled vehicle portfolio at the end of March 2014 were detailed in the report. The major purchase during the year was the 150m purchase of UBS Triton Property Unit Trust. The 9 month return for this holding was 11.05% according to IPD. That the content of the report be noted. 20. INVESTMENT STRATEGY AND TACTICAL POSITIONING 2014/15 The Executive Director of Pensions submitted a report and delivered a presentation that reviewed the benchmark asset allocations for the Main Fund and Fund Managers and considered changes to the investment restrictions. To help consider the issues, each of the external Fund Managers had submitted a strategy paper focusing on a number of issues/questions, including: The UK and international economic outlook for 2014/15 and the medium term; The prospects for the various markets over the medium term (5-10 years); and Was the Fund s overall realistic benchmark asset allocation of 58% public equity; 5% alternatives; 27% bonds and cash and 10% property (as adopted by the July 2013 Panel, but yet to implemented) likely to be able to deliver a real rate of return in excess of 2.5% pa (i.e 2.5% - 3% pa plus RPI inflation)?

11 Copies of the Managers papers were appended to the report and they presented their views to the Panel. It was reported that the current decade through to March had produced absolute returns for the average Local Authority fund of 7.8% pa. GMPF s relative investment performance had been good over the last ten years with a return in excess of the LA peer group average of 0.3% per annum to the end of March The report also covered the following: Background; Allocation of Assets to Managers; Active and Benchmark Risk; Required Rate of Return; Asset Allocation Targets; Past Market Returns; Future Returns; Asset Allocation within the LA Pension Fund Industry; Revisiting the allocation to public equity; Revisiting the allocations to debt related investments (including Bonds and Cash); Revisiting the allocations to alternatives; Revisiting the allocation to property; A number of other matters (i.e. local investment, currency, fundamental or optimised indices and investment ranges and the use of futures ). The Advisers were then asked to comment. Mr Bowie supported the strategy as detailed in the report. He made reference to decisions to be made going forward with regard to new governance requirements and the introduction of a Scheme Board and the possibility of further scrutiny of some decisions being delegated to the Working Groups. He suggested that the Investment strategy report might benefit from detailed consideration by an appropriate Working Group in future. Mr Hemingway also broadly supported the strategy but would not want to see an increased investment in conventional bonds at the moment, although he was content to see the equity allocation reduce in order to diversify the risk. That; (i) Any requirements for cash to be withdrawn from the securities managers to be taken from UBS. (ii) Main Fund Overall Asset Allocation Reduce the overall benchmark public equity weighting, from the current level of 62% of Main Fund, to a specified fixed level lying between 57% and 59% with a concomitant increase in allocation to a broadened debt-related investment asset class. Increase the existing allocations to Alternative Investments (on a realistic basis) from 4.5% to 5% (with a concomitant further reduction in the allocation to Public Equity of 0.5%) and maintain the existing allocation to Property at 10%. (iii) Public Equity Allocation (a) Change the Public Equity split from 40% UK and 60% Overseas to 35% UK and 65% Overseas.

12 (c) Maintain the Overseas equity split at : North America 32.5%; Europe (ex UK) 27.5%; Japan 15%; Pacific 10% and Emerging Markets 15%. Continue to progress to completion the search and procurement exercise for a specialist Global Equity manager (with a remit to manage 5% of Main Fund assets) using Hymans Robertson. The Business Development Working Group to interview managers appointed to a Framework Agreement and to act as the 'Framework Call-Off' Panel. (iv) Debt Related Investments (inc Bonds)/Cash Allocation (a) (c) (d) (e) No immediate change to current individual bond benchmark allocations, but as an interim measure, permitted active manager deviations be increased to allow wider freedom to actively invest. Institute a benchmark exposure of between 3 and 5% points to a wider Debt Related Investments 'asset class' in line with the reduction in the weighting of public equity. [see ii. above] Commission Hymans Robertson to lead on the search for an overarching specialist manager of wider Debt Related Investments. The Business Development Working Group to act as the 'Framework Call-Off' Panel. No change to current 6.2% allocation to cash (3.2% strategic component and 3% tactical component), but the 3% tactical component be kept under review for possible redeployment into other assets. Withdraw an amount of 100m from the securities managers to replenish the Fund's non-manager holdings of cash. (v) Alternative Investments (a) Private Equity : The recommendations of the Alternative Investments Working Group be adopted (minute 21 refers). Infrastructure : The recommendations of the Alternative Investments Working Group be adopted (minute 23 refers). (c) Special Opportunities Portfolio : No change to the current 5% target allocation nor to the key features of the portfolio. (vi) Property (a) Maintain the long term target allocation to property at 10% of total Main Fund assets. Maintain the sub-division of the allocation to property, to broaden the range of approaches to obtaining the target 10% exposure, as follows :

13 In-house Managed (Direct and Indirect) Range % 4-8 Indirect 0-2 GMPVF 0-3 Overseas 0-2 Other 0-1 Total 6-14 (vii) Local Investment Maintain the overall limit on those assets which are locally invested at 5% of Main Fund as agreed at the July 2011 Panel. Whilst the majority of these local investments are likely to consist of property or property related assets the Business Development Working Group will consider proposals for an internally managed portfolio of assets in funds and co-investments that have the twin aims of commercial returns and local impact. Range % GMPVF 0-3 Other Internal 0-2 Total 0-5 (viii) Currency (a) Allow Capital and UBS to hedge between pairs of currencies as an alternative to hedging back to sterling. Maintain strength of current risk controls. Give consideration to the Fund's overall approach to currency exposure in a future report to the Panel. (ix) Implementation The nature, timing and detailed implementation of any benchmark changes necessary to reflect the decisions of the Panel be settled by the Executive Director of Pensions following consultation with the advisors and/or managers where appropriate. 21. REPORTS OF THE MANAGERS (a) UBS Global Asset Management Ian Barnes, Head of UK and Ireland, UBS Global Asset Management made reference to the market background and the UBS portfolio performance to 31 March With regard to GMPF Investment Strategy, he outlined the following key messages: That GMPF s benchmark remains suitable to achieve long-term return objectives;

14 Tactically, bonds looked overvalued and equities, as a whole, represented fair value; and There were significant opportunities within equities to add value through short-term asset allocation. Capital International Mr Gosztony, President, Capital International Limited, began by giving a breakdown of asset allocation and investment results by asset class. Mr Brett, Fixed Income Portfolio Manager, Capital International Limited, then made reference to the overall investment objective and he summarised Capital s key investment strategy points as follows: Capital estimated that the strategic benchmark had a 70-80% probability of meeting the investment objective of % real return per annum over the long term; It was considered that an equity heavy strategic allocation was appropriate; No significant valuation anomalies were expected; Capital expected a steady rise in interest rates starting next year but less aggressively than in previous cycles; The main risks were extremes of inflation or deflation; and It was believed that sterling would be weak long term particularly against the US dollar. That the content of the Managers presentations be noted. 22. ACTUARIAL VALUATION UPDATE Consideration was given to a report of the Executive Director of Pensions, which provided information about the outcomes from the Actuarial Valuation process. It was reported that, at the valuation date, the Fund had assets of 12.6bn, liabilities of 13.9bn and a funding level of 90.5%. However, the funding level and future contribution rate varied significantly at the individual employer level. It was further reported that GMPF s valuation results and summary valuation data were supplied to the Government Actuary and the LGPS Shadow Board, who were undertaking a comparison of assumptions and results across the LGPS sub-funds. The results of this analysis would be provided at a future meeting of the Panel. It was expected that the GMPF funding level was higher than the vast majority of other funds when measured on a like-for-like basis. That the content of the report be noted. 23. ACTUARY AND INVESTMENT ADVISER RE-TENDER A report of the Executive Director of Pensions was submitted informing Members that Hymans Robertson had been the actuary and investment adviser to the Fund for 25 years. The appointment was for a fixed period and hence there was a need to re-tender. It was explained that, since the adviser roles were last re-tendered, national frameworks had been developed for the procurement of actuarial and investment advisers by LGPS funds. It was further explained that at the time of the last and previous tenders, the actuarial and investment adviser roles were tendered on a joint basis. If the Fund elected to use the new frameworks then these appointments would need to be tendered separately and the outcome of the tender process may be that different firms were appointed to each of the roles. However, LGPS funds having joint appointments remained fairly common.

15 The report concluded that the advantages of using the framework was that it was a much quicker process and would still allow GMPF to specify the criteria and weight of such criteria on which appointments would be made. The making of separate appointments was increasingly in line with normal practice and reflected the best of breed concept. This needed to be balanced against possible synergies from a joint provider. That the use of the National Frameworks for the re-tendering of the Actuary and Investment Adviser roles be approved. 24. TENDER PROCESSES FOR INVESTMENT MANAGERS The Executive Director of Pensions submitted a report giving details of progress on three current tender exercises for investment managers at the Fund, as follows: Global Equities; Main Property; and GMPVF. That progress made on the tender exercises and the timetable for completion be noted. 25. DUTIES OF ADMINISTERING AUTHORITY UNDER THE LGPS Consideration was given to a report of the Executive Director of Pensions, which informed Members that the Local Government Association, on behalf of the LGPS Shadow Advisory Board, instructed Nigel Griffin QC to answer the following questions: (i) (iii) Does an LGPS administering authority owe a fiduciary duty and if so to whom is it owed? How should the wider functions, aims or objectives of the administering authority influence the discharge of its LGPS investment duties. Details of Nigel Griffin QC s advice were appended to the report, and his conclusions were explained as follows: In managing an LGPS fund, the administering authority had both fiduciary duties and public law duties (which were in practice likely to come to much the same thing); and The administering authority s power of investment must be exercised for investment purposes, and not for any wider purposes. Investment decisions must therefore be directed towards achieving a wide variety of suitable investments, and to what was best for the financial position to the fund (balancing risk and return in the normal way). However, so long as that remained true, the precise choice of investment may be influenced by wider social, ethical or environmental considerations so long as that did not risk material financial detriment to the fund. In taking account of any such considerations, the administering authority may not prefer tis own particular interests to those or other scheme employers, and should not seek to impose its particular views where those would not be widely shared by scheme employers and members (nor may other scheme employers impose their views upon the administering authority). That the content of the report be noted. 26. ACCOUNTING FOR PENSION COSTS IAS 19 The Executive Director of Pensions submitted a report which detailed the outcome of this year s local authority accounting reports. This showed the small increase in funding levels assessed in

16 accordance with the accounting standard IAS19 that the local authority employers of the Fund would be reporting as at 31 March It also explained the reasons for the changes in deficit levels. That the report be noted. 27. FUTURE TRAINING DATES Trustee Training opportunities were noted as follows: LGC Investment Summit Celtic Manor NAPF Annual Conference ACC, Liverpool 9 10 September October 2014 Capital International Annual Training Day, Manchester 21 November 2014 Fundamentals Training for New Members: Day 1 Leeds Marriott Hotel Day 2 Leeds Marriott Hotel Day 3 Leeds Marriott Hotel 14 October November December DATES OF FUTURE MEETINGS The dates of future meetings of the Greater Manchester Pension Fund Management/Advisory Panel and Working Groups were noted as follows: Management/Advisory Panel 12 September 2014 (AGM) 11 December 2014 (Thursday) Dukinfield Town Hall 6 March 2015 Pensions Administration/Ethics and Audit Working Groups 25 July October January April 2015 Alternative Investments/Property Working Groups 1 August October January April 2015 Business Development Working Group 31 July October February March 2015 Employer Funding Viability Working Group 8 August November February April 2015

17 MoJ Project Board 18 July September October November December 2014 CHAIR