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

Matthew Trebilcock Pension Investment Manager

Agenda Investment Strategy Employer Asset Tracking Governance

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 decisions Order of decision process 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 categories of 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 allocation AssetsPre-transition strategy % Strategy as at 31 December 2014 % Post–transition strategy % Global Equities Emerging Market Equities Frontier Market Equities 62 0   15 5 Diversified Growth0  12.6  12 Property7  7.2  10 Infrastructure1  1.0  10 Hedge Funds4  1.3  8 Private Equity5  4.4  5 Cash & Other5  0.8  - Liability Driven Investment 0  8.6  20 Corporate Bonds8  14.8  10 Gilts8  0.0  0 Total100

Investment Strategy Performance Fund Value: £1,499,313,855.00

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 (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 (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 MethodHEAT 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

Current LGPS governance structure HM Treasury Responsible Authority (Secretary of State for DCLG) Responsible Authority (Secretary of State for DCLG) Administering Authority (Scheme Manager –Cornwall Council) Administering Authority (Scheme Manager –Cornwall Council) Pension Committee s.101 Responsibility Pension Committee s.101 Responsibility Officers (s.101 & s.151 responsibilities) Officers (s.101 & s.151 responsibilities)

Governance Future LGPS governance structure HM Treasury Responsible Authority (Secretary of State for DCLG) Responsible Authority (Secretary of State for DCLG) Administering Authority (Scheme Manager –Cornwall Council) Administering Authority (Scheme Manager –Cornwall Council) Pension Committee s.101 Responsibility Pension Committee s.101 Responsibility Officers (s.101 & s.151 responsibilities) 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: E