Leicestershire County Council Pension Fund

1. Leicestershire County Council Pension Fund Presentation for Annual General Meeting 11th January 2018

2. Notable Events 2016/17 • Completion of 2016 Actuarial Valuation - Contribution rate increases for most employing bodies (as expected) - Improved funding level from 2013 (76% from 72%) - Similar cash deficit (c.£1bn) - Strong likelihood of further employer contribution increases after 2019 valuation

3. Notable Events 2016/17 • Very strong returns from equity markets • Brexit-related sterling weakness increased returns on overseas assets for sterling investors • UK commercial property suffered from Brexit doubts, particularly Central London • Fund return +22.5% in 2016/17 • Annualised 5 year return +10.7%

4. Notable Events 2016/17 • Strong performance from a number of the Fund’s investment managers • Meaningful outperformance of benchmark (22.5% vs. 20.2%) • Some good tactical decisions, notably removal of currency hedge just prior to Referendum • Continue to selectively seek diversification and high returns via stand-alone ‘opportunity pool’ investments

5. Notable Events 2016/17 • Continuing strong momentum in move towards investment pooling within the LGPS • LGPS Central continues to make meaningful progress towards its launch on 1st April 2018 • Major opportunity to reduce investment management costs, and hence improve net investment returns to the Fund • Implementation risks still exist, but signs so far are good

6. LGPS Investment Pooling • Government initiative that was announced in July 2015 • Eight pools have been formed, covering England & Wales • Different approaches to how to manage assets on a pooled basis • Government very keen to promote very high standards of governance

7. LGPS Investment Pooling • Leicestershire is part of LGPS Central, alongside 8 other Midlands-based Funds (Cheshire, Derbyshire, Nottinghamshire, Shropshire, Staffordshire, West Midlands, West Midlands Integrated Transport Authority, Worcestershire) • Excellent co-operation and compromise in terms of agreeing investment options • Significant long-term fee savings will be made, but there are up-front costs • Mixture of internal and external investment management • LGPS Central recently approved as an investment manager by the Financial Conduct Authority

8. LGPS Investment Pooling • Individual Funds will retain control over asset allocation (i.e. where its assets are invested) • LGPS Central will be responsible for implementing asset allocation, including appointment of investment managers • LGPS Central will have significant internal investment expertise and should have skills to ensure performance is at least in-line with expectations • Economies of scale – investing as a single entity, rather than as nine individual ones – will reduce costs • LGPS Central has £40bn of assets • Investment managers are fully aware that they will need to reduce their fees, or risk not being involved in the local authority market

9. LGPS Investment Pooling • First assets will be managed by LGPS Central from 1st April 2018 • Thereafter, assets will be transferred from individual funds on a rolling basis and LGPS Central will launch its own investment products • Areas of biggest savings will be dealt with first • LGPS Central will need to build resource in certain areas (notably private markets such as infrastructure and private equity) before it can manage all of the assets of the Funds • Transfer and restructuring will take multiple years • LGPS Central needs to learn to walk before it can run – reducing costs at the expense of worse investment performance is not sensible

10. Scheme Administration - Highlights • Over 56,000 annual benefit statements and all HMRC taxation pension saving statements were issued by the statutory deadlines. • Work commenced on the national Guaranteed Minimum Pension (GMP) reconciliation exercise. This work continues to HMRC’s 31 December 2018 deadline. • Monthly postings of member pension contributions commenced with a select number of employers. This is now being rolled out to other Fund employers. • A review of the Fund’s additional voluntary contributions (AVC) fund choices took place working closely with the Prudential. • The Fund’s Local Pension Board met its governance and administration requirements, meeting five times throughout the year, covering a number of pension administration areas including - Fund’s risk management, GMP reconciliation, AVC review, requests for admission body status, annual benefit statements, pension taxation, statutory deadlines, customer feedback, key performance indicators, Board training

11. Scheme Administration - Highlights • 2016/2017 Key performance indicators

12. Scheme Administration – Current Projects • GMP reconciliation exercise remains ongoing. • The Pension Regulator has introduced a national “pension data improvement” exercise. Each administrator will produce a data improvement plan – this links into the roll out of monthly postings • General Data Protection Regulations go live in May 2018. • The current administration system contracts ends April 2019. A tender exercise is taking place in partnership with Derbyshire County Council Pension Section, for a replacement administration system. This is in four elements. • Core system • Employer self-service (optional element) • Member self-service (optional element) • Pensioner payroll (optional element) A decision on the successful bidder and the optional elements will be made in early 2018. Implementation will be a major exercise throughout 2018/19 in preparation of go-live from April 2019.