ITEM PF16
PENSIONS FUND COMMITTEE – 25 FEBRUARY 2009
INVESTMENT VALUATION MONITORING ARRANGEMENTS
Report by Head of Finance & Procurement
Introduction
1. The Pension Fund Committee receives information about the valuation of Pension Fund Investments on a quarterly basis. This includes details of the value of those investments by category and Fund Manager, the totals of transactions within each category and the performance of the Fund as a whole and by investment category and Fund Manager. Concern was expressed during the period of extreme volatility in October last year that limited information was available about the value of Pension Fund Investments and a request was made to improve reporting arrangements to rectify this.
2. It is worth stating that the Pension Fund is a long term investor, and any decisions about investments should be based on a long term view and not on short term fluctuations. In addition, to get an accurate picture of the impact of prevailing market conditions on the Pension Fund, one should also take into account the liability side of the Fund. The Council’s Actuary produces a quarterly estimate of the position of the Fund taking into account both assets and liabilities.
Arrangements prior to November 2008
3. The Custodian undertakes a monthly reconciliation of the value of the Fund’s investments that he holds. The reconciliation process usually takes up to two weeks to complete. This process does not include those assets held in pooled funds, e.g. Legal & General’s passive UK Equity holding. The valuation of certain classes of asset is not undertaken monthly because of the difficulties in valuing the assets, including certain private equity holdings.
4. As indicated above, full valuation information is provided on a quarterly basis which is presented to this Committee.
Arrangements post November 2008
5. Arrangements are now in place whereby the valuation information held by the Custodian is downloaded each Friday. This information is then updated for the ‘missing’ assets. Assets such as Property Unit Trusts and Private Equity are recorded at the latest valuation figure available. The passive UK Equities held by L&G are updated using the relevant FTSE 100 indices (on the assumption that the valuation will have moved in line with the index). This takes about half a day each week to do and provides an approximate value for the Fund. This value is held by the Head of Finance & Procurement and Principal Financial Manager should anyone want the information.
6. It is only possible to provide approximate valuation of the Fund. It is not possible to tell how the Fund is performing. Each month cash is paid into the Fund from employers and each month pensions are paid to pensioners. In addition, Fund Managers are buying and selling shares, the Independent Financial Adviser may be buying or selling private equity shares and there may be drawdowns on Funds committed to our Limited Liability Private Equity partners. All this will impact on the value of investments from one week to the next making an assessment of performance impossible.
RECOMMENDATION
7. The Committee is RECOMMENDED to note the revised arrangements for monitoring the value of the Fund’s investments.
PAUL GERRISH Head of Finance & Procurement
Background papers: Nil
Contact Officer: Paul Gerrish, Head of Finance & Procurement Tel (01865) 815613
February 2009
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