INVESTMENT COMMITTEE
THURSDAY 7THDECEMBER 2006 AT 10 AM / Agenda Item No:
10
SUMMARY OF THE WORKSHOP HELD ON 17TH NOVEMBER 2006
Report of the Finance Director
Author of the report: Nicola Webb (Telephone: 01992 555394)
1.Purpose of the Report
1.1To provide a brief summary of the discussions at the workshop session held on 17th November 2006.
2.Summary
2.1The main area of discussion was globalisation and Mercers demonstrated that the arguments for home bias in equity investing are questionable in the context of the global operations of companies.
2.2A brief presentation on infrastructure investing was provided outlining what it is and how pension funds can access it.
3.Conclusion
3.1The Committee members in attendance concluded that Mercers should be asked to provide a report for the March 2007 meeting detailing a proposed way forward on globalisation.
3.2Infrastructure investing should be kept under consideration for the future.
4.Background
4.1An investment committee workshop is held once a year with two aims:
- to provide members with on-going training on pension and investment matters;
- to provide a forum for discussing and debating current issues in greater depth.
4.2The 2006 workshop was held on 17th November, attended by ten members and led by the Fund’s Investment Consultant, Nick Sykes of Mercers.
4.3The main theme of the workshop was globalisation and equity investments. The topic of infrastructure investing was also discussed.
5.Globalisation and equity investments
5.1The Committee were reminded of the rationale for investing in equities in general before examining the reasons for considering overseas equities in addition to UK equities. The Fund currently has a 60/40 bias in favour of UK equities and it was demonstrated that this home bias is common in pension funds across the world.
5.2The presentation showed that the traditional arguments for home bias no longer make sense as so many companies are global concerns and some companies listed in the UKhave no UK operations. It was argued that currency can be hedged at a relatively low cost and in fact most currency managers outperform. This would mitigate any risk associated with transacting in other currencies.
5.3The different methods of setting a benchmark for a global portfolio were discussed. Both fixed weight benchmarks and market capitalisation benchmarks have their advantages and disadvantages. How appropriate each approach is depends on the way an individual manager runs their investment process.
5.4The Committee then discussed how to take forward the results of the globalisation discussion and agreed that Mercers be asked to prepare a report on the way forward for the Investment Committee’s meeting in March 2007.
6.Infrastructure Investing
6.1The presentation showed that infrastructure projects are capital intensive and long term in nature and are expected to generate a stable income stream once mature. The different ways to invest in infrastructure – unlisted equity, listed equity and bonds – were described. The different ways of investing lead to different risk/return characteristics as these are governed by the nature of the underlying financial instruments.
6.2Mercers’ recommendation was that it is an interesting and still developing area, which is worth keeping under consideration for the future.
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