Barnet pension scheme votes to join the LAPFF

The LAPFF, with combined assets of more than £230bn, is a collaborative shareholder group. Barnet will become the forum’s 76th member.

The forum has been active of late, with the West Midlands Pension Fund recently agreeing to divest from South Korean arms manufacturer Hanwha Corporation after years of sustained pressure on the company from the LAPFF in relation to cluster munitions.

Keith Bray, forum officer at the LAPFF, confirmed that “Barnet’s application to join the LAPFF will be accepted and will take effect almost immediately”.

In less positive news for the £1.1bn Barnet fund, a Government Actuary’s Department review of the scheme’s funding position has shown that it is in the bottom 10 per cent of Local Government Pension Scheme funds.

During a meeting in June, the committee also turned its attention to some of the scheme’s asset managers, with Mark Shooter, chairman of the pension fund committee, describing the performance of Newton Investment Management’s Real Return Fund as “disastrously poor”.

Committee holds vote

In March, the mayor of London wrote to the city’s boroughs calling on their pension funds to divest from fossil fuel companies.

Khan wrote: “I made a manifesto commitment to take all possible steps to encourage the London Pension Fund Authority to divest its remaining investments in fossil fuel industries that damage the environment and lead to climate change”.

He added: “I am now calling on local authorities across the capital to join me in taking their pension funds out of companies that can damage the planet and lead to climate change.”

The Barnet committee, which is composed of four Conservative and three Labour councillors respectively, rejected the mayor’s request.

“I don’t think it’s a good idea at the moment to alter our investment strategy per se because we are invested in trackers… so we can’t disinvest from there and say [to asset managers], ‘Will you make an alteration to your constituents?’” Shooter said.

The committee instead opted to hold a vote on joining the LAPFF.

Executive pay debated

The committee was almost universally in favour of joining the forum, electing to sign up to the LAPFF by six votes to one. Barnet will pay an annual membership fee of £9,000.

Despite agreeing to support the scheme’s existing investment strategy, Labour councillor Alison Moore said that the mayor’s aspirations were laudable.

She told the committee that she would be “looking for opportunities to be more ethical in the way we invest”, while accepting her fiduciary responsibility to the scheme.

The proposal to join the LAPFF was solely opposed by Conservative councillor Anthony Finn, who spoke out against the principle of setting ethical guidelines for investment.

Finn, who had declared a relationship with former WPP chief executive Martin Sorrell at the start of the meeting, also said that executive pay is “nothing to do with” ethical investment.

In 2018, the Financial Times reported that some WPP shareholders expressed concern about excessive pay, referring to Sorrell's 2015 remuneration, when he earned a total package of £70m.

In 2016, the LAPFF advised its members to vote against WPP’s remuneration report. Sorrell stepped down from his position earlier this year.

“It’s a big salary,” Finn noted in the meeting, arguing that “it’s not for them to put down... what people should be paid”.

Finn told Pensions Expert that he is an employee of accountancy firm Purcells, which acts for the JMCMRJ Sorrell Foundation, where Martin Sorrell is a trustee.

In response to his Conservative colleague, John Marshall said that “for once in my life, I disagree completely with councillor Finn”.

“Shareholders in a company have a perfect right to comment on the remuneration of the chief executive, particularly when it gets obscene,” he added.

In support of Marshall, Moore commented that “there’s well-remunerated and there’s completely obscene, and I absolutely agree with councillor Marshall”.

A WPP spokesperson said: “WPP’s executive director remuneration has always sought to align executives’ interests with shareholders’ interests with well over 90 per cent of the former CEO’s remuneration being performance based and in shares.”

The spokesperson added that the opportunity afforded under the long-term incentive plan scheme “was significantly reduced in both 2014 and again at the 2017 AGM. Given the five year performance cycle of the schemes, the full extent of the reduction was not evident in remuneration levels of the former CEO prior to his resignation”.

Investing in the community

Various LGPS funds have been looking at investing in their local areas with the added aim of improving their social responsibility.

The Barnet councillors discussed the plausibility of investing the fund’s assets into local infrastructure. The fund is currently not invested in property.

Labour councillor Danny Rich demanded to know why the scheme could not invest more in housing for the area and support British infrastructure.

“Is the fund able to invest in housing in Barnet, for example, or is that simply not viable?” he asked.

“It seems to me that the British economy has thousands of millions of assets in our pension funds sitting in overseas equities... Why can’t we... build the HS2 [train] line?”

Alison Moore agreed with Rich. She asked: “What are other London local authorities doing?”

Shooter highlighted the fund’s “main concern”, which is to generate returns.

The fund lacks the scale to manage local housing investment on its own, he said. Investment in Barnet housing “would also require a lot of in-house expertise in order to manage it for the fund”, he added.

But local authority schemes are no strangers to investing in their localities. In January, Pensions Expert reported that the Nottinghamshire County Council Pension Fund increased its commitment to local property investment.

The £4.9bn scheme added £10m to its local property fund and expanded the geographical area where it will invest.

And last year, the circa £21.3bn Greater Manchester Pension Fund was concluding a series of impact investment deals, worth about £100m, which would build roughly 2,000 local homes.

Asset managers under scrutiny

As of March 31 2016, the Barnet scheme had an 82.3 per cent funding level on the scheme advisory board’s standardised basis, placing Barnet in the bottom 10 per cent of LGPS for funding positions.

According to the scheme’s actuary, Barnet’s funding level lies at 71.3 per cent on an ongoing funding basis.

The committee also scrutinised some of the scheme’s asset managers. The fund’s investment consultant has downgraded Schroders’ two mandates, a diversified growth fund and corporate bonds, from ‘preferred’ to ‘positive’.

The Newton Real Return Fund was also downgraded, falling to ‘suitable – on watch’ from ‘positive’.

Shooter said Newton has had an “abysmal 12 months”, delivering a 1.3 per cent loss compared to Schroders’ 5.2 per cent gain. It has returned a 2.3 per cent loss for this quarter.

“We’ve tried and tried to give them a chance, but given that... their performance is disastrously poor, I think rather than try and reduce our holding… I’d rather try and speed up our disinvestment from there into some of our other proposed investments,” 
he said.

A council spokesperson said: “No decision has been made to divest. This will be discussed further at the next Pension Fund Committee [meeting] on Monday 30 July.”

A committee document from the June meeting noted that “the current Schroders fee for the diversified growth fund is 0.55 per cent per annum. Schroders have offered a fee reduction to 0.5 per cent”.

It added: “This will save £70,000 per annum based on the current fund values. Schroders recognise that compared with the fee rates payable for DGFs by the London Collective Investment Vehicle their fee rate is higher and that without evidence of cost savings Barnet may be challenged on its pooling plans.”

Shooter asked for a larger fee reduction from Schroders, to 0.4 per cent from 0.55 per cent.

The council spokesperson said the committee is still in discussions with Schroders regarding this proposal. It anticipates hearing back from them before the next committee meeting.

Schroders and BNY Mellon, of which Newton is a subsidiary, did not wish to comment on their client engagements.