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LONDON CIV

LONDON BOROUGH OF WALTHAM FOREST

PENSION COMMITTEE

16/03/2017

Commercial and in Confidence

Agenda

CIV Progress and Fund Development

Appendices

Global Equity Strategies

Government Pooling Agenda

Attendees

Julian Pendock - Chief Investment Officer, CIV

Jill Davys – AD, Client Management, CIV

2Commercial and in Confidence

Fund Development

London CIV – Early collaboration on

commonality basis to deliver financial benefits to

London Funds

Investment Regulations 2016 – Pooling

effectively mandatory from 2018

London CIV - meets Government Criteria

Investment Strategy Statement requires annual

reporting of asset transfers to the Pool (LGPS

Management and Investment of Funds Regulations 2016 7(2)(d) – Statutory Guidance )

London CIV principles to work closely with

Funds to deliver their current and future needs3


Fund Development

Passive Equity:

LGIM - £2.5bn staying as Life Funds at

authority level


Fund Development

5

FUND

(Underlying Manager)

PRICE

(Pence)

FUND

SIZE

£M

Q4 YTD SINCE

INCEPTION

INCEPTION

DATE

LCIV Global Equity Alpha

(Allianz Global Investors)

Benchmark: MSCI World

Net GBP Index

120.8

625

2.12%

7.08%

22.69%

28.24%

22.53%

27.59%

02/12/15

LCIV BG Global Alpha

Growth (Baillie Gifford)

Benchmark: MSCI All

Countries World Gross

Index

124.9

1,489

3.92%

6.43%

25.47%

25.84%

25.47%

25.84%

11/04/16

LCIV PY Total Return

(Pyrford)

107.3 201

0.56% 7.3% 7.3% 17/06/16

LCIV Diversified Growth

(Baillie Gifford)

111.6 346

2.01% 11.60% 11.60% 15/02/16

LCIV RF Absolute Return

(Ruffer)

111.5 347

2.01% 11.50% 11.50% 21/06/16

LCIV NW Real Return

(Newton)

101.4 326

1.4% 1.4% 1.4% 16/12/16

Total LCIV Assets Under

Management

3,336

Data as at 31/12/16Source: Bloomberg

6

Fund Development

Proposed Sub-Fund Openings under Commonality Criteria:

May 2017Newton Global Equity

Majedie UK Equity

June 2017Longview Global Equity

Challenges to delivery:

Opening CQC sub-funds is more complex than anticipated due to different starting points for each authority

Fund Development

Where London Funds were invested at

outset of Pooling:


Global Equity ProcurementLargest Asset Class across London

Authorities reviewing managers

Appointment of 2 consultants – Mercer & Redington

9 Investment Strategies including Emerging Markets and Sustainable Equities

Tenders reviewed – high level of responses

Preferred Managers under consideration

Borough Engagement

Sub-Funds – H2 2017


Fund Development

Fund Development

9

Triennial valuation in 2016

Pension Fund maturity%

%greater demand for cashflow

Fixed Income markets distorted%.

%traditional approaches alone won’t work

Look for options alongside traditional fixed income

Building blocks


Fund Development

11

2016 2017 2018

Impact of 2016 valuation

becomes clearer

Open balance of CQCbased sub-funds during Spring 2017.

Global equity:

Search and selection underway.

Aim to open initial sub-funds by summer 2017.

Fixed Income:

Scoping the project now.

Commence search and selection, dependent on progress of GE and impact of 2016 valuation.

Aim to begin opening sub-funds by early 2018.

Already looking at some “alternative” asset classes (e.g. infrastructure, housing, PE-) but need to consider best fund structure to hold each type of asset and systems and processes to support so will take longer to deliver unless “off the shelf” solutions are used (e.g. 3rd party property fund).

Fund DevelopmentCurrent timeline

Client Relationship Changes

When you invest in the London CIV ACS your relationship with

existing investment managers changes


LGPS Fund

Investment Manager

LGPS Fund

LCIV ACS

Investment Manager

Previous / current

relationshipsNew relationships

What does this mean for you?

We will work with you and the investment managers to

ensure you get the level of engagement and reporting

you need to understand:

investment strategies

performance

investment risk

Our intention is to provide added value through manager

oversight and reporting which also allows us to fulfil our

regulatory responsibilities

We are working with the Investment Advisory Committee

to develop our overall reporting framework

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Responsible Investment

Requirement for Funds – Investment Strategy Statement (ISS)

Regulation 7(2)(e) - How social, environmental or corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments

Regulation 7(2)(f) - The exercise of rights (including voting rights) attaching to investments

Good governance – integrated into the CIV process to hold managers to account for the monitoring of investments


Responsible Investment

Joint Committee –Policy Statement to adopt LAPFF guidelines for voting

Joint Committee working group to consider whole area of Stewardship, Voting and ESG going forwards

IAC Working Group on Stewardship

Stewardship Code Compliance Statement

Sustainable Equities as part of global equity procurement

Cross-Pool Working Group


Low Carbon Investments

CIV Working to understand Borough requirements

Officer working group established – like minded Funds

Information gathering exercise to assess demand for products and whether active or passive

Low Carbon workshop being organised for June


Upcoming Events

Global Equity Information Days – May

June - Low Carbon Workshop

Autumn – Fixed Income and Cashflow

Seminar

Autumn – Infrastructure Seminar

17

APPENDICES

18

Global Equity Strategies


Appendix – Global Equity

StrategiesLot 1 – Generic Global Equites, 6 investment strategies:

Global Core (Redington) - Exposure to long-only listed global equity markets with tilts to a blend of multiple style factors. This might

include (but not exclusively); a combination of Value, Momentum and Quality factors.

Global Value (Redington) - Exposure to long-only listed global equity markets with persistent style exposure to “value” factors (relative

to the MSCI World). This might include (but not exclusively); low price to earnings, price to cash-flow or price-to-book ratios.

Global Quality (Mercer) - Exposure to long-only listed global equity markets with persistent style exposure to “quality” factors (relative

to the MSCI World). This might include (but not exclusively); high return on equity, high return on assets, low volatility of earnings

growth or low levels of financial leverage.

Global Trend Growth (global unconstrained) (Mercer) - Exposure to long-only listed global equity markets with persistent style

exposure to “trending” factors (relative to the MSCI World). This might include (by not exclusively); price momentum, fundamental

momentum or earnings revisions.

Global Income (Mercer) - Exposure to long-only listed global equity markets with persistent style exposure to “dividend yield” (relative

to the MSCI World), and a portfolio-level yield persistently in excess of the dividend yield on the MSCI World.

Global Low Volatility (Redington) - Exposure to long-only listed global equity markets with a focus on creating a portfolio of securities

that primarily target a lower overall volatility than MSCI World.

Lot 2 – Emerging Markets Strategy:

Emerging Markets (Mercer) - Exposure to long-only listed emerging market equities with the majority of portfolio invested in securities

listed in countries defined as “emerging”.

Lot 3 – Sustainable Equities Strategy:

Sustainable Equity (Redington) - Exposure to long-only listed global equity markets with a focus on explicitly considering

environmental, social and governance (ESG) factors in portfolio selection and management.

Lot 4 – Incubator Managers:

Emerging Managers/ Incubator (Mercer and Redington) - Exposure to long-only listed global equity markets with firm-wide AUM less

than $2bn


Background - Pooling

November 2015 – Criteria & Guidance

Published

Asset Pool(s) that achieve the Benefits of

Scale

Strong Governance and Decision Making

Reduced Costs and Excellent Value for

Money

An improved Capacity to Invest in

Infrastructure



Scale

All 33 London local authorities

£29.1bn total AUM at 31/03/15

CIV already operational and delivering savings


Government Pooling

Agenda – Governance

Overall Governance Structure of London CIV

Structures in place and operational


Governance & Decision

Making

Supervisory Body (PSJC)Formal committee of London Councils

One elected Member per authority

Oversight and scrutiny of the pool as shareholders & investors

Recommending strategic objectives

Investment Advisory Committee24 officers from participating authorities

Mix of Treasurers and Pension Fund Managers

Operates under the leadership of the Society of London Treasurers

Reports to the PSJC

Works with London CIV officers

Sub-groups covering e.g. global equity search and selection, RI & stewardship, and infrastructure

23


Governance & Decision

Making

LGPS Pension Fund Level

Funding Strategy

Asset Allocation & Investment Strategy

Investment Strategy Statement

Appointment of Advisers

London CIV Level

Appointment & removal of external 3rd party managers

Decisions on sub-fund structures and fund launches

All FCA Regulated Activities 24


Costs & Savings

Criterion C – Reduced costs and excellent value

for money

Investment Management Costs as at 31/03/15

Waltham Forest: £8m or 111.7bp (31/03/16) –


Costs & Savings

26

Criterion C – Reduced costs and excellent value for money

London Funds £’000 paid for investment management 2016

London Funds Report & Accounts 2016

Costs & Savings

27

Criterion C – Reduced costs and excellent value for money

London Funds – bps paid for investment management 2016

Infrastructure

Criterion D – An improved capacity to invest in infrastructure

The London CIV is committed to working with other pools to develop both capability and capacity in infrastructure

Working with the Cross Pool Collaboration Infrastructure Group

Current allocation to infrastructure across London Funds <1% of AUM

Allocation to infrastructure is local decision – but improved capacity and capability at pool level will provide confidence to make those decisions


Infrastructure

Criterion D – An improved capacity to

invest in infrastructure

London funds indicating 3%-10% allocation if

risk/reward is right

What do we mean by infrastructure?

How to access?

Where – UK or Overseas?

Working with others?

How to allocate?


Questions


DisclaimerImportant information

London CIV

59½ Southwark Street

London

SE1 0AL

Issued by London LGPS CIV Limited, which is authorised and regulated by the Financial Conduct Authority number 710618. London CIV is the trading name of

London LGPS CIV Limited.

This material is for limited distribution and is issued by London CIV and no other person should rely upon the information contained within it. This document is

not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution would be unlawful under the laws governing

the offer of units in collective investment undertakings. Any distribution, by whatever means, of this document and related material to persons who are not

eligible under the relevant laws governing the offer of units in collective investment undertakings is strictly prohibited. Any research or information in this

document has been undertaken and may have been acted on by London CIV for its own purpose. The results of such research and information are being

made available only incidentally. The data used may be derived from various sources, and assumed to be correct and reliable, but it has not been

independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use.

The views expressed do not constitute investment or any other advice and are subject to change and no assurances are made as to their accuracy.

Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and you may not get

back the amount you invest. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation

may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of

taxation may change from time to time.

Subject to the express requirements of any other agreement, we will not provide notice of any changes to our personnel, structure, policies, process, objectives

or, without limitation, any other matter contained in this document.

No part of this material may be reproduced, stored in retrieval system or transmitted in any form or by any means, electronic, mechanical, recording or

otherwise, without the prior written consent of London CIV.

London LGPS CIV Ltd. is a private limited company, registered in England and Wales, registered number 9136445.

Registered office: 70 Great Bridgewater Street, Manchester M1 5ES.

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