1.1 This Statement of Investment Principles was agreed by the Pensions and Trusts Committee of the City of Edinburgh Council on 10 March 2008.
1.2 The Local Government Pension Scheme (Management and Investment of Funds) (Scotland) Regulations 1998 and its subsequent amendment in 2000 requires administering authorities to prepare, maintain and publish a written Statement of Investment Principles (SIP) covering:
The SIP must be reviewed from time to time in accordance with any material changes in the Policy.
1.3 The Local Government Pension Scheme (Management and Investment of Funds) (Scotland) Amendment Regulations 2003 also requires that the SIP must state the extent to which the administering authority complies with the ten principles of investment practice set out in the document published in April 2002 by CIPFA, or give the reasons why they do not.
2.1 The City of Edinburgh Council (CEC) is the administering authority for the Lothian Pension Fund, the Lothian Buses Pension Fund and Scottish Homes Pension Fund (“the Funds”).
2.2 The Pensions and Trusts Committee (“the Committee”) of the City of Edinburgh Council has delegated responsibility for the supervision of the Funds. Full details of the governance arrangements can be found in the Committee’s Governance Policy Statement.
2.3 This SIP sets out the principles governing decisions about the investments of the Funds. The Funds recognise the importance of corporate governance and corporate responsibility in ensuring the long term financial performance of the companies in which they invest.
2.4 The SIP forms part of a framework that includes:
3.1 The primary aim of the Funds is to ensure that all members and their dependants receive their benefits when they become payable.
3.2 The funding objectives are documented in the Committee’s Funding Strategy Statement. The primary funding objectives are:
3.3 The Funds seek to control risk through investing in a diverse range of investments.
3.4 The Pensions and Trusts Committee set an investment strategy for each Fund, taking into account the funding status and liabilities. The strategies are subject to regular review. Asset liability modelling techniques are used to assist in the strategy reviews, as appropriate.
3.5 Details of each Fund’s investment strategy are provided in Appendix 1.
4.1 Each Fund’s investment strategy is implemented by employing a number of investment managers, as appropriate to each Fund.
4.2 The Pensions and Trusts Committee sets an overall outperformance target relative to the investment strategy for each Fund.
4.3 The objective is to employ a combination of managers that will deliver, in aggregate, the target performance for each Fund. Each Fund employs different types of managers depending on the requirements of the Fund.
4.4 The Funds’ current targets relative to the benchmarks are:
4.5 To reduce the risk that a Fund significantly underperforms, performance and risk targets are set for each manager relative to their benchmark. They are included in formal fixed term Investment Management Agreements. The risk targets may include control ranges around each asset class. In addition, managers and their performance are monitored on a regular basis.
4.6 The investment managers are responsible for the selection of individual holdings within each type of investment category within the parameters set out in their agreement.
4.7 A significant portion of the Lothian Pension Fund’s assets are managed internally. Details are as follows:
4.8 Specialist transition managers are employed to manage complex changes in investment strategy and/or manager(s).
4.9 The selection of investment managers complies fully with EU directives on competitive tendering for investment services.
4.10 Details of the Funds’ investment managers and their benchmarks are provided in Appendix 1
5.1 The Committee has approved the use of the following different types of investment to achieve their overall investment objectives:
5.2 Each Fund expects its investments to produce a return over the long term above that of the investment return assumed in the actuarial valuation.
5.3 The majority of each Fund’s investments are quoted on major stock markets and may be realised relatively quickly if required. A small proportion of each Fund’s investments (such as property and for Lothian Pension Fund, private equity and infrastructure) would take longer to be realised.
5.4 The Pensions and Trusts Committee believes that environmental, social and governance issues can affect the financial performance of companies and that it has a responsibility to take these issues seriously and where appropriate, to act upon them.
5.5 The Fund will pursue a policy of constructive engagement with companies on issues which are consistent with the Funds’ fiduciary responsibilities. Each Fund’s overriding obligation is to act in the best financial interests of the members of the Funds.
5.6 The Fund will collaborate with other like-minded investors to pursue company engagement.
5.7 The Fund is a member of the Local Authority Pension Fund Forum (LAPFF).
5.8 The Committee has signed up to the United Nations Principles of Responsible Investment.
5.9 The Committee reviews its environmental, social and governance activities on a regular basis.
5.10 The Pensions and Trusts Committee recognises its responsibility to exercise voting rights to ensuring transparency and accountability in corporate governance.
5.11 The Committee currently exercises its voting rights at all general meetings of European companies. Voting will be extended to other markets over the course of 2008.
5.12 The emphasis of voting is to promote best practice within industry in areas such as board composition, company strategy, executive remuneration, environmental and workforce policies.
5.13 Records of the Fund’s voting are reported to Committee on a regular basis.
5.14 The Fund will consider participating in class actions on a case-by-case basis.
5.15 The services of a global custodian are employed to ensure the safekeeping of investments.
5.16 An independent provider, Portfolio Evaluation, is employed to calculate performance for the Funds. Each quarter, the Investment Strategy Panel considers the performance of the combined assets and each manager’s portfolio against their respective benchmark. Bi-annually the Pensions and Trusts Committee review performance over the short, medium and long term.
6.1 The Funds are compliant with the statutory restrictions set out in the Local Government Pension Scheme (Management and Investment of Funds) (Scotland) Regulations 1998 and its subsequent amendments.
6.2 The Fund is compliant with the 10 principles of investment practice as set out in the CIPFA Pensions Panel guidance published in April 2002. These are based on the Myners’ review of institutional investment. The Fund’s compliance with the principles is provided in Appendix 2.
7.1 The Pensions and Trusts Committee will review this statement annually or more frequently if appropriate. The Committee will consult with such persons, as it considers appropriate and take written advice when revising the statement.