annual meeting – 20 jun 2014. agenda introduction overview investment administration finance...

ANNUAL MEETING – 20 JUN 2014

Agenda

• Introduction• Overview• Investment• Administration • Finance• Actuarial

Session 1 – 2013/14 Review

Session 2• LGPS 2015

Lynn BrownExecutive Director of Financial Services

& Depute Chief Executive

Glasgow City Council

Overview

A Year in Pensions

The Randolph

This just in…

Are You Ready?

• On your marks…• Get set…

Richard KeeryInvestment Manager

Investments

Investments

Investment performance

•Current investment strategy

•Investment performance - 1st April 2013 to 31st March 2014

•Investment performance – longer term

•Business plan objectives 2014-2015

New Opportunities Portfolio

Responsible investment

Investment strategy

Long term strategic benchmark

Quoted equity 65%

Private equity 7.5%

Property 12.5%

Bonds 15%

100%

Manager Structure 2014

Baillie Gifford

Lazard

Oldfield

Veritas

JP Morgan

Henderson

Genesis

Pantheon

Partners

PIMCO

DTZ

Multi-Asset

Passive

Global Equity

Specialist

Mandates

Strategic allocation: Asset Class

October 2013: £680m transfer L&G market cap L&G RAFI

tt

S&P 500 Index - 2013/14

Investment performance 2013/2014

%

Returns by asset class

Asset class 2012/13 %

2013/14 %

UK equity 17.3 10.3

Overseas equity 17.1 6.6

Private equity 17.7 7.1

UK corporate 12.2 1.4

UK gilts 5.2 -2.6

UK Index linked 11.8 -4.4

Property 4.4 13.1

Total Fund 14.5 7.0

Equity manager performance

Investment manager

Portfolio %

Benchmark %

+/-%

Legal & General 7.6 7.3 0.3

Baillie Gifford 3.5 2.7 0.7

Lazard 3.3 6.2 -2.7

Oldfield Partners 8.2 6.2 2.0

Veritas 13.0 6.2 6.5

Henderson 27.3 32.3 -3.7

JP Morgan 18.1 11.9 5.6

Genesis -10.7 -9.2 -1.7

Manager performance: Other asset classes

Investment manager

Portfolio %

Benchmark %

+/-%

Pimco 0.5 0.5 0.0

Partners Group 5.8 8.8 -2.8

Pantheon 6.8 8.8 -1.9

DTZ 15.6 11.2 3.9

Partners Group Global Real Estate

2.0 14.0 -10.5

Investment performance: 5 and 10 years

%

Business plan objectives 2014/2015

Complete review of investment strategy and structure based on asset liability modelling and the 2014 actuarial valuation

Complete tender for responsible investment overlay service

Summary

Despite a period of uncertainty in markets earlier in the year, the Fund generated a strong return.

Performance across asset classes and managers was mixed, but overall the Fund increased in value to its highest ever level, £13.9 billion.

Longer term performance continues to be positive with the Fund ahead of its peer group benchmark and actuarial target.

Investments

Investment performance

•Current investment strategy

•Investment performance - 1st April 2013 to 31st March 2014

•Investment performance – longer term

•Business plan objectives 2014-2015


Responsible investment

George FinnieInvestment Manager


Background Investment process Opportunities Investments Approved in 2013/14 Outlook for 2014/15


Established in 2009 (Revised in March 2013) Opportunistic focus on attractive alternative

assets Portfolio limit set at 3% of total Fund value

(currently £415million) Four new investments approved in year to

31 March 2014 with total commitments of £139.5m

Total commitments at 31 March 2014 of £199.5m, of which £32m drawn at that date

New Opportunities PortfolioBackground

New Opportunities PortfolioCommitment by Sector

Portfolio by sectorPrivate Equity

8%

Property42%

Infrastructure41%

Renewables4%

Senior/Mezz Debt5%

First review by Investment Manager Monthly WIP meetings with Head/CIO to identify

best opportunities Initial due diligence on opportunities Board Meeting with Executive Director of

Financial Services Sounding Board Meeting Representative Forum Strathclyde Pension Fund Committee Final due diligence and legals

New Opportunities PortfolioInvestment Process

New Opportunities PortfolioOpportunities by Sector

Opportunities by sectorProperty

11%

Renewables17%

Housing20%

Other18%

Senior/Mezz Debt7%

Ground rents3%

Insurance3%

Infrastructure21%

New Opportunities PortfolioPensions Infrastructure Platform

Part of an initiative to create an infrastructure fund for UK institutional pension funds

SPF one of five founder investors – Commitment £50 million

Investment in established secondary infrastructure assets i.e. no construction risk

Established deal flow in place - £17m drawn down since March 2014

First distribution of income already received

Established to invest in property opportunities within the Strathclyde area – Commitment of £50 million

Opportunistic focus on lot sizes less than £10m Managed by Ediston Real Estate Six potential opportunities currently under

review, with a mix of industrial, retail and office properties

First transaction expected to conclude in Q3 2014

New Opportunities PortfolioClydebuilt Fund

Fund is focussed on primary investments in UK Infrastructure projects – SPF Commitment of £32 million

Fund builds and maintains infrastructure assets to operate specific services

Sectors include hospitals, waste management facilities, roads projects and social housing upgrades

Around 78% of fund now committed to projects Southmead Hospital completed

New Opportunities PortfolioAberdeen UK Infrastructure Fund

New Opportunities PortfolioSEP Environmental Capital Fund

Investment in a fund with two business streams Acquisition of existing connections business from

a utility – immediately income producing Investment in a number of small-scale

renewables opportunities such as energy efficiency schemes, district heating schemes etc.

Completion expected by August 2014, with immediate income stream from connections business

Outlook for 2014/15

Four commitments have since been approved at June

2014 Committee:1. Albion Community Power

2. Iona Capital Partners

3. Resonance Wind Energy

4. Healthcare Royalty Partners

Strong and diverse pipeline of opportunities

Distribution levels from portfolio continue to increase

Responsible Investment

Richard KeeryInvestment Manager


Corporate Governance – voting

44,043 resolutions at 3,957 company meetings 99% of total votes lodged (100% UK) 90% of votes in support of management

2013/14Total UK & Overseas

No of No. of No. of No of Votes Votes Not Proxies Proxies

meetings AGM's EGM'sResolution

s ForAgains

tAbstention

s Voted* LodgedNot

LodgedBaillie Gifford 92 86 6 1,269 1,176 46 3 44 89 3Genesis 165 114 51 1,996 1,835 126 32 3 165 0Henderson 217 166 51 1,928 1,855 48 18 7 216 1JP Morgan 404 368 36 3,286 2,676 496 6 108 397 7Lazard 115 109 6 1,646 1,494 84 8 60 114 1Legal & General 2,723 2,358 365 31,035 27,890 2,989 156 0 2,723 0Oldfield Partners 21 20 1 272 248 24 0 0 21 0Schroders (No 3 Fund) 184 171 13 2,530 2,270 70 7 183 168 16Veritas 36 30 6 81 81 0 0 0 36 0

Total 3,957 3,422 535 44,043 39,525 3,883 230 405 3,929 2890% 9% 1% 1% 99% 1%

37

Executive Remuneration 4,135 resolutions relating to remuneration 678 remuneration resolutions opposed

Lafarge, Fiat, Citigroup, Dupont, Exxon Mobil, AstraZeneca, Heineken, Credit Suisse, Ryanair

Management proposals rejected Afren - exceptional bonus awards Oracle - quantum of awards to CEO BATM - poor disclosure, excessive CFO bonus and structure of

share option scheme City of London Inv. Group - excessive termination payments to

directors

Consultation/engagement on remuneration Royal Dutch Shell, Massmart, Sberbank, Barrick Gold, Standard

Chartered Bank, Renault

38


2013/14 Engagement topics

Executive remuneration Supply chain policies and management Oil & Gas operations in the Niger Delta Offshore deep-water Oil & Gas operations in

Nigeria Labour standards within China UK Working Group on Collective Engagement Controversial security contracts in the occupied

territories Copper mining in Zambia Green House Gas emissions Black Economic Empowerment (BEE)

regulations in South Africa Welfare and sustainability in the Cocoa industry Living Wage

Russian Federation’s Code of Corporate Governance

Real Estate Energy Performance Certificates

Protection of endangered species Human Rights Shale gas exploration in the UK Health & safety and technology Fossil fuel to renewables Supply chain, opportunities and challenges Bauxite mining in India Oil and gas exploration and extraction in

the Arctic EU Shareholder Rights Directive Japanese Stewardship code UN Convention on the Rights of the Child Fire & Building safety in Bangladesh

garment industry

39



The ‘Living Wage’ ShareAction ‘JustPay!’ campaign Embed Living Wage standards in the UK's private

sector, beginning with the biggest companies on the London Stock Exchange

"We've found that paying the Living Wage is a smart business move as increasing wages has reduced staff turnover and absenteeism, whilst productivity and professionalism have subsequently increased.“ - Guy Stallard - Director of Facilities, KPMG Europe

“It makes the business easier to run. Our rota has become easier, it's easier to recruit, our staff aren't as tired because some of them haven't had to look for second or third jobs, they work harder, they are more enthusiastic..." Hilary Jones - Ethics Director, Lush Retail

40

Collaborative letter to the F.T. Collaborative letters to constituent

companies of the FTSE100 66 companies contacted in 2012/13 18 companies confirmed as Living

Wage employers Anglo American, Barclays, Pearson, Aviva,

Arm Holdings, GKN, Standard Chartered Bank, RSA Insurance Grp, Centrica, Standard Life, ITV, Unilever, Old Mutual, Prudential, Resolution, Royal Dutch Shell, Legal & General and HSBC

33 companies in on-going discussions

41


Bangladesh garment industryTazreen Fashions fire 2012 - 110 garment workers killed

en Fashions fire in 2012. 110 garment workers killed.

42



Rana Plaza building collapse 2013 – 1,129 garment workers killed

43

Bangladesh garment industry $20 billion industry, 80% of export economy 5,600 factories 4 million workers 85% women 86 to 92-hour weeks Average wage 21 to 25 cents per hour

44


What does this have to do with us ? PRI – SPF Responsible Investment Policy “As

institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society.”

45


Principle 2 - We will be active owners and incorporate ESG issues into our ownership policies and practices. Principle 5 - We will work together to enhance our effectiveness in implementing the Principles.

November 2013, GES Engagement Day in Stockholm

Hennes & Mauritz AB (H&M) “By 2018, all our strategic suppliers in Bangladesh should have pay structures in place to enable worker to receive a fair living wage.”

750 factories 850 000 workers, 60% of H&M products

47

“By 2014, implement Fair Wage Method in 3 Model Factories, and evaluate outcome to be able to scale up to a larger part of strategic suppliers.”

"H&M will encourage governments to engage in a process to identify a living wage level, set a legal minimum wage accordingly and review wages annually thereafter."


Accord on Fire and Building Safety in Bangladesh• June 2013 - A global coalition of over 200 institutional investors

representing $2 trillion issued a public call for apparel brands and retailers to endorse the Accord on Fire and Building Safety in Bangladesh.

• An independent, legally binding agreement between brands and trade unions designed to work towards a safe and healthy Bangladeshi Ready-Made Garment Industry.

• Signed by over 170 international brands and retailers, two international trade unions, and eight Bangladesh trade unions. Four international NGOs are witnesses to the agreement. The International Labour Organisation (ILO) acts as the independent chair.

48


49

Accord on Fire and Building Safety in Bangladesh

– a five year legally binding agreement between brands and trade unions to enable a safe working environment in the Bangladeshi garment industry.

– an independent inspections program enabled by factory owners and brands, in which workers and trade unions are involved.

– a reporting system of transparent publication of all inspection reports and Corrective Action Plans.

– a commitment by the industry to ensuring remediation measures are completed.

– an extensive training and worker empowerment program. – the installation of health and safety committees in all Accord

factories.


Structural inspections Viyallatex Ltd, Gazipur, Bangladesh (December 2013)

“Permit drawings show a 7 storied building2 additional floors have been built (extension occupies 10% roof area).”

51


Structural inspections

52

Cracks on beams detected

Viyallatex Ltd, Gazipur, Bangladesh (December 2013)


Structural inspections Grameen Knitware, Dhaka, Bangladesh (November 2013) “Storage Building at East face of main building – structural system

does not match construction documentation.”

Sag in Support Beams observed

53


Fire & Safety Inspections Dragon Sweater, Dhaka, Bangladesh (January 2014)

“Locked egress door, Level 16 finishing room.”

“Rear exit stair, obstructed access to street.”

54


Fire & Safety Inspections Dragon Sweater, Dhaka, Bangladesh (January 2014)

“Exit stair obstructed, discharge path through storage area.”

55


How are we doing? ShareAction survey - 5th out the top 24 pension funds in the UK and

second highest of the LGPS surveyed. “The Strathclyde Pension Fund is to be commended for its substantial commitment to RI, as evidenced through its detailed policies and practice.”

Global Child Forum Leaders Summit at the Royal Palace in Stockholm by invitation of H.M. the King and H.M. the Queen of Sweden

56


annual meeting – 20 jun 2014. agenda introduction overview investment administration finance...

Documents