S T R AT H C LY D E P E N S I O N F U N D
ANNUAL MEETING – 20 JUN 2014
Agenda
Session 1 – 2013/14 Review
•
•
•
•
•
•
Introduction
Overview
Investment
Administration
Finance
Actuarial
Session 2
•
LGPS 2015
Overview
Lynn Brown
Executive Director of Financial Services
&
Depute Chief Executive
Glasgow City Council
A Year in Pensions
The Randolph
This just in…
Are You Ready?
•
•
On your marks…
Get set…
Investments
Richard Keery
Investment Manager
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
JP Morgan
Baillie Gifford
Henderson
Genesis
Pantheon
Lazard
Partners
Multi-Asset
Passive
Oldfield
PIMCO
Veritas
DTZ
Global
Equity
Specialist
Mandates
Strategic allocation: Asset Class
t
October 2013: £680m transfer L&G market cap
L&G RAFI
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

New Opportunities Portfolio

Responsible investment
New Opportunities Portfolio
George Finnie
Investment Manager
New Opportunities Portfolio





Background
Investment process
Opportunities
Investments Approved in 2013/14
Outlook for 2014/15
New Opportunities Portfolio
Background





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 Portfolio
Commitment by Sector
Portfolio by sector
Renewables Senior/Mezz Debt Private Equity
5%
4%
8%
Infrastructure
41%
Property
42%
New Opportunities Portfolio
Investment Process








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 Portfolio
Opportunities by Sector
Opportunities by sector
Other
18%
Property
11%
Insurance
3%
Infrastructure
21%
Ground rents
3%
Senior/Mezz Debt
7%
Housing
20%
Renewables
17%
New Opportunities Portfolio
Pensions 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
New Opportunities Portfolio
Clydebuilt Fund





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 Portfolio
Aberdeen UK Infrastructure 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 Portfolio
SEP 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.
2.
3.
4.
Albion Community Power
Iona Capital Partners
Resonance Wind Energy
Healthcare Royalty Partners
Strong and diverse pipeline of opportunities
Distribution levels from portfolio continue to increase
Responsible Investment
Richard Keery
Investment Manager
Responsible Investment
37

Corporate Governance – voting
2013/14
Total UK & Overseas
Baillie Gifford
Genesis
Henderson
JP Morgan
Lazard
Legal & General
Oldfield Partners
Schroders (No 3 Fund)
Veritas
Total



No of
meetings
92
165
217
404
115
2,723
21
184
36
3,957
No. of No. of
AGM's EGM's
86
6
114
51
166
51
368
36
109
6
2,358 365
20
1
171
13
30
6
3,422
535
No of
Resolutions
1,269
1,996
1,928
3,286
1,646
31,035
272
2,530
81
Votes
For
1,176
1,835
1,855
2,676
1,494
27,890
248
2,270
81
Votes
Against
46
126
48
496
84
2,989
24
70
0
Abstentions
3
32
18
6
8
156
0
7
0
Not
Voted*
44
3
7
108
60
0
0
183
0
Proxies
Lodged
89
165
216
397
114
2,723
21
168
36
Proxies
Not Lodged
3
0
1
7
1
0
0
16
0
44,043
39,525
90%
3,883
9%
230
1%
405
1%
3,929
99%
28
1%
44,043 resolutions at 3,957 company meetings
99% of total votes lodged (100% UK)
90% of votes in support of management
Responsible Investment
38

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
Responsible Investment
39
Russian Federation’s Code of Corporate
Governance

2013/14 Engagement topics

Executive remuneration

Real Estate Energy Performance Certificates

Supply chain policies and management

Protection of endangered species

Oil & Gas operations in the Niger Delta

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

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


Oil and gas exploration and extraction in the
Arctic

EU Shareholder Rights Directive

Japanese Stewardship code
UN Convention on the Rights of the Child

Welfare and sustainability in the Cocoa industry


Living Wage

Fire & Building safety in Bangladesh garment
industry
Responsible Investment
40





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
Responsible Investment
41




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
Responsible Investment
42
Bangladesh garment industry
Tazreen Fashions fire 2012 - 110 garment workers killed
en Fashions fire in 2012. 110 garment workers killed.
Responsible Investment
43
Rana Plaza building collapse 2013 – 1,129 garment workers killed
Responsible Investment
44

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
Responsible Investment
45


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.”
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.
46
Responsible Investment
47



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
“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."
Responsible Investment
48
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 ReadyMade 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.
Responsible Investment
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.
50
Responsible Investment
51

Structural inspections

Viyallatex Ltd, Gazipur, Bangladesh (December 2013)
“Permit drawings show a 7 storied building
2 additional floors have been built (extension
occupies 10% roof area).”
Responsible Investment
52

Structural inspections
Cracks on beams detected
Viyallatex Ltd, Gazipur, Bangladesh (December 2013)
Responsible Investment
53

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
Responsible Investment
54

Fire & Safety Inspections

Dragon Sweater, Dhaka, Bangladesh (January 2014)
“Rear exit stair, obstructed access to street.”
“Locked egress door, Level 16 finishing room.”
Responsible Investment
55

Fire & Safety Inspections

Dragon Sweater, Dhaka, Bangladesh (January 2014)
“Exit stair obstructed, discharge path through storage area.”
Responsible Investment
56

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