Secure your future todaySave early and prepare for the retirement lifestyle you want.

Matthew TrebilcockPension Investment Manager

Agenda

• Investment Strategy

• Employer Asset Tracking

• Governance

Investment Strategy

Investment Strategy

• Ensure that sufficient and appropriate resources are available to meet all pension liabilities as they fall due

• Achieve real investment returns in the medium and long term consistent with the assumptions of the latest actuarial valuation

• Maximise the potential returns from investments within reasonable risk parameters

• Constrain the pension fund’s costs to the greatest extent possible – both in terms of the absolute value and their volatility

Broad objectives of any pension fund

Investment Strategy

Impact of decisionsO

rder

of d

ecis

ion

proc

ess

Strategic Asset Allocation – Growth/Bond Split

Style/Structure of Management

Selection of Managers

Degree of financial significance

Key investment decisions for the investment of any pension fund

Asset Class Allocation and Benchmarking

Investment Strategy

Setting investment strategy

Two potential objectives

of investment strategy:

Reduce risk

Generate return

Investment Strategy

Meeting the objectives

By Investing in two

broad categoriesof assets :

Growth seeking assets

(risk assets)

Liability matching

assets(risk reducing

assets)

Aim to match changes in liabilities

Inflation

Interest rate

Diversification

Not matched to liabilities

Aim to generate excess long-term returns

Investment Strategy

Agreed asset allocationAssets Pre-transition

strategy % Strategy as at

31 December 2014%

Post–transitionstrategy

% Global Equities

Emerging Market Equities

Frontier Market Equities

62

0

0

39.7

4.7

4.9

15

5

5Diversified Growth 0 12.6 12Property 7 7.2 10Infrastructure 1 1.0 10Hedge Funds 4 1.3 8Private Equity 5 4.4 5Cash & Other 5 0.8 -

Liability Driven Investment

0 8.6 20

Corporate Bonds 8 14.8 10Gilts 8 0.0 0

Total 100 100 100

Investment Strategy

Performance• Fund Value: £1,499,313,855.00

Three months One Year Three Years Five Years-10123456789

Performance to 31 January 2015

Fund Benchmark Excess Return

Employer Asset Tracking

Employer Asset Tracking

Employers are a diverse group

Term Maturity

Security Guarantor

Planning to exit

Closed to new entrants

Funding level

Size

No actives

Employer Asset Tracking

We need….

Employer Asset Tracking

How do LGPS Funds track assets?

We don’t track weekly, monthly or annually. Employer asset shares are only calculated at the triennial valuation.

Assets are not calculated by addition and subtraction of cashflows and investment return.

Employer Asset Tracking

How do LGPS Funds track assets?

Deficit at 2010 valuation (£100m)Investment profit +£20m

Salary loss (£5m)

Ill-health profit +£10m

Mortality loss (£20m)

Share of miscellaneous (£10m)

Deficit at 2013 valuation (£105m)

Assets at 2010 valuation

Liabilities at 2013 valuation £500m

Deficit at 2013 valuation (£105m)

Assets at 2013 valuation £395m

Actuarial analysis used to calculate assets at triennial valuation

Employer Asset Tracking

Limitations of analysis of surplus

Not robust enough for the LGPS of today

• Not auditable or explainable to employers

• Dependent on liability data

• Not all data required is available

• Uses fund averages which may not be appropriate for all employers

• Assets only calculated accurately once every 3 years

• Need an actuary to calculate assets

• Can’t be easily automated

Employer Asset Tracking

Move to a unitisation approach

Simple and transparent

• Assets at 1 December - £650k• December investment return - 2%• Contributions received - £40k• Benefit outgoings of - £30k• Cash flow approach gives position at 31 December of

650 x 1.02 + (40 – 30) = £673k

• Assets at 1 January - £673k• January investment return- -1.5%• Contributions received - £32k• Benefit outgoings of - £34k• Cash flow approach gives position at 31 January of

673 x -1.015 + (32 – 34) = £660.91k

Employer Asset Tracking

How does employer asset tracking work?

Each employer allocated a notional asset share (units)

Changes in asset values are reflected in

changes in the unit price

Net employer cash flows are calculated

every month and units are bought or sold

A monthly asset statement is created for each employer

Employer Asset Tracking

How does employer asset tracking work?

Current Method HEAT

Reduces cross subsides across employers

Increases efficiency

Auditable and transparent

Simple and easy to understand

Ability to automate asset calculations

Need for complex actuarial calculations

The asset tracking approach is robust and flexible

Governance

Governance

Current LGPS governance structure

HM Treasury

Responsible Authority(Secretary of State for DCLG)

Administering Authority(Scheme Manager –Cornwall Council)

Pension Committees.101 Responsibility

Officers(s.101 & s.151 responsibilities)

Governance

Future LGPS governance structure

HM Treasury

Responsible Authority(Secretary of State for DCLG)

Administering Authority(Scheme Manager –Cornwall Council)

Pension Committees.101 Responsibility

Officers(s.101 & s.151 responsibilities)

tPR (codes of practice on governance,

administration, etc.)

National Scheme Advisory Board

Pension Board

Governance

Formation of Pension Board

Pension Board• Assist the Scheme Manager in securing compliance

with:• Pension regulations• Legislation relating to governance and

administration• Pension Regulator’s requirements e.g. CoP

• To ensure effective and efficient governance and administration

Governance

Pension Regulators CoP• Governing your scheme

• Conflicts of interest• Information to be published about schemes

• Managing risks• Internal controls

• Administration• Scheme record-keeping• Maintaining contributions• Information to be provided to members

• Resolving issues• Internal dispute resolution• Reporting breaches of the law

Governance

Cornwall Local Pension Board

• Membership• 2 Employee representatives and 2 Employer representatives• non-voting Independent Chair• open and transparent appointment process open to all employees

and employers

• LPB members will:• disclose all potential conflicts of interest• commit to attend the LPB meetings (minimum 2 per year)• commit to undertake and attend necessary knowledge and

understanding training• Undertake to abide by the LPB terms of reference

Effective from 1 April 2015

Thank you

Find out more:

www.cornwallpensionfund.org.uk

E pensions@cornwall.gov.uk