City of Westminster Superannuation Fund Investment Performance Report to 30 September 2013 · 2014....

Deloitte Total Reward and Benefits Limited November 2013

City of Westminster Superannuation Fund Investment Performance Report to 30 September 2013 Executive Summary

Deloitte Total Reward and Benefits Limited City of Westminster Superannuation Fund

Investment Report to 30 September 2013

1

1 Market Background 2

2 Total Fund 3

3 Summary of Manager Ratings 7

4 SSgA – Passive Equity 9

5 LGIM – Passive Global Equity 11

6 Majedie – Active UK Equity 12

7 Insight – Bonds 13

8 Hermes – Property 15

9 Standard Life Investments – Long Lease Property 17

Appendices Appendix 1 – Fund and Manager Benchmarks

Appendix 2 – Manager Ratings

Appendix 3 – Risk Warnings

Contents



2

Three and twelve months to 30 September 2013

The UK equity market performed positively over the third quarter with the FTSE All Share Index returning 5.6%. Whilst returns were positive over the period, it was quite a volatile quarter for UK equities. After strong gains in July, investor confidence was dampened over the remainder of the quarter by concerns over the potential tapering of quantitative easing in the US, an escalation of the conflict in Syria and the threat of a US government shutdown.

There was mixed performance across the different sectors over the third quarter. Basic Materials, Telecom and Technology stocks had a strong quarter, returning 14.0%, 13.6% and 11.5% respectively. In contrast, the Oil & Gas, Health Care and Consumer Goods sectors achieved small negative returns over the period.

Global equity markets outperformed the UK over the third quarter when measured in local currency terms, but underperformed the UK in sterling terms after sterling appreciated strongly against the major global currencies. Currency hedging therefore proved beneficial to sterling investors, with the FTSE All World Index returning 6.4% in local currency terms, but only 1.2% in sterling terms. Returns across the different global regions were universally positive when measured in local currency terms, but more mixed when measured in sterling terms. The top performing region was Europe (ex UK) which returned 9.8% in local currency terms and 6.9% in sterling terms.

Continued concerns that the US Federal Reserve (the ‘Fed’) would slow its asset purchasing programme weighed on UK gilt markets for most of the third quarter. These concerns led to a rise in short and medium term gilt yields in particular, as the market anticipated earlier interest rate rises than originally forecasted. Nominal gilt yields reached their peak in mid-September before receding after the Fed’s announcement that it intended to delay the expected tapering of quantitative easing. By the end of the third quarter, the yields on the All Stocks Gilt Index and Over 15 Year Gilt Index were broadly unchanged and the indices returned 0.5% and 1.3% respectively during the 3 months to 30 September 2013.

Real yields were also broadly unchanged over the third quarter. As a result, the Over 5 Year Index-linked Gilts Index returned 0.5% over the period. Corporate bonds outperformed gilts as credit spreads narrowed, particularly in lower rated bonds. The iBoxx Non-Gilt All Stocks Index returned 2.2% over the third quarter.

Over the 12 months to 30 September 2013, the UK FTSE All Share Index returned 18.9% with small cap stocks performing particularly strongly (34.2%). Returns were positive across most sectors over the period, with the exception of Basic Materials (-6.5%) and Oil & Gas (-4.4%). Technology and Consumer Services were the strongest performing sectors, returning 35.8% and 31.2% respectively.

Global equity markets also performed well over the year to 30 September 2013 with the FTSE All World Index returning 18.2% for unhedged sterling investors and 21.7% in local currency terms. Currency hedging was beneficial over the period, due mainly to sterling’s strong appreciation versus Japanese yen. All major regions posted positive returns over period, with Japan as the strongest performing region in both sterling and local currency terms. Emerging markets continued to lag developed markets, returning 7.2% in local currency terms.

UK nominal gilts performed negatively over the year due to the recent rise in nominal yields, with the All Stocks Gilts Index returning -3.0% and the Over 15 Year Gilt Index returning -4.4%. Index-linked gilts fared better however, as the Over 5 Year Index-linked Gilt Index returned 6.6%. Corporate bonds also outperformed gilts over the 12 months to 30 September 2013 as credit spreads narrowed. The iBoxx All Stocks Non Gilt Index returned 3.0% over the period.

The UK property market returned 2.9% over the quarter and 6.5% over the 12 months to 30 September 2013

1 Market Background



3

2.1 Investment Performance to 30 September 2013

Over the quarter, the Fund’s passive mandates with LGIM (equities) and Insight (gilts)) performed broadly in line with their respective benchmarks. While SSgA’s UK mandate tracked the benchmark, the International equity portfolio lagged. Of the active managers, Majedie (equities), Hermes (property) and Insight (non-gilts) outperformed their benchmarks by 3.4%, 0.2% and 0.3% over the quarter.

Over the one year and three years to 30 September 2013 both Majedie and Insight outperformed, helping performance at the Total Fund level. Over the three years period to 30 September 2013 the Fund has outperformed its benchmark.

The table below summarises the investment performance to 30 September 2013 by manager.

Last Quarter (%) Last Year (%) Last 3 Years (% p.a.) 1 Since inception (% p.a.) 1

Fund B’mark Fund B’mark Fund B’mark Fund B’mark

Gross Net1 Gross Net1 Gross Net1 Gross Net1

Majedie2 9.0 8.9 5.6 31.4 30.8 18.9 16.3 15.9 10.1 11.3 10.9 6.0

SSgA UK 5.6 5.6 5.6 19.0 19.0 18.9 10.2 10.1 10.1 6.0 5.9 5.9

SSgA International 3.5 3.5 3.7 20.3 20.2 20.5 n/a n/a n/a 8.1 8.1 8.3

LGIM – Passive3 6.0 6.0 6.0 n/a n/a n/a n/a n/a n/a 17.6 17.5 17.5

Insight – Non Gilt 2.0 1.9 1.7 4.2 4.0 3.7 6.6 6.4 5.7 5.8 5.6 5.3

Insight – Passive 0.0 0.0 0.0 -2.0 -2.1 -2.2 3.0 2.9 3.0 5.9 5.8 6.0

Hermes4 2.5 2.4 2.3 6.5 6.1 3.9 n/a n/a n/a 5.0 4.6 4.9

Total Fund 5.2 5.1 4.3 17.6 17.4 15.5 10.5 10.2 9.1 6.2 5.8 5.8

Figures are quoted net and gross of fees. Source: Majedie, SSgA, LGIM, Insight, Hermes and BNY Mellon.

(1) Estimated by Deloitte.

(2) In addition to a flat fee, Majedie’s fee includes a performance fee of 20% where the excess return is above 1% pa.

(3) Since inception performance is measured from 1 November 2012.

(4) Since inception performance of Hermes property fund is measured from the inception date of 26 October 2010.

The chart below compares the performance of the Fund relative to the expected variation around the target outperformance over the three years to Q3 of 2014. This highlights that over the past 10 quarters the cumulative performance has been positive. The Fund’s performance continues to fluctuate around the target line, with the strong over Q2 and Q3, performance has driven the cumulative return slightly above the long term target.

2 Total Fund



4

2.2 Attribution of Performance to 30 September 2013

The Fund outperformed its composite benchmark by 0.92% over the third quarter of 2013 as a result of Majedie’s strong performance.

Over the past 12 months the Fund has outperformed its composite benchmark by 2.02%, with all managers except SSgA and LGIM contributing to the outperformance. The breakdown clearly illustrates that Majedie was the primary driver contributing to the positive performance over the 12 month period.

Please note that the relative individual contributions in the chart above might not add up to the total fund outperformance. This is due to the fact that the Fund’s performance during the last 12 months has been impacted by the performance of funds held with Newton and Schroder, which were liquidated and moved to LGIM and the increase in the allocation to Hermes during the last quarter of 2012.



5

2.3 Asset Allocation as at 30 September 2013

During June 2013, the decision was taken by the Committee to invest in the Standard Life Long Lease Property Fund, funding the holding in the first instance from any remaining conventional gilt holdings. As a result c.£30.2m was disinvested from Insight Fixed Interest Gilt Fund and the funds were invested with Standard Life on 14 June 2013.

The table below shows the assets held by manager and asset class as at 30 September 2013.

Actual Asset Allocation

Manager Asset Class 30 Jun 2013 (£m)

30 Sept 2013 (£m)

30 Jun 2013 (%)

30 Sept 2013 (%)

Benchmark Allocation (%)

Control Range (%)

Majedie UK Equity (Active) 201.9 220.2 23.5 24.3 16.9 +/-2

SSgA UK Equity (Passive) 114.0 115.9 13.3 12.8 16.9 +/-2

Total UK Equity 315.9 336.1 36.8 37.1 33.8

LGIM Global Equity (Passive)

160.8 170.7 18.7 18.9 20.6 +/-2

Newton Global Equity (Active) 0.2 0.0 0.0 0.0 0.0

SSgA Overseas Equity (Passive) 164.5 165.7 19.1 18.3 20.6 +/-2

Total Global Equity 325.5 336.4 37.8 37.2 41.2

Insight Fixed Interest Gilts 16.7 16.7 1.9 1.8 5.0

Insight Sterling Non-Gilts 135.1 137.8 15.7 15.2 15.0

Total Bonds 151.8 154.5 17.7 17.0 20.0 +/-4

Hermes Property 36.3 36.7 4.2 4.1 5.0

Standard Life*

Property 30.2 41.2 3.5 4.6 0.0

Total Property 66.5 77.9 7.7 8.7 10.0

Total 859.7 904.9 100.0 100.0 100.0

Westminster In-House Account 11.2 4.3 - - -

Total 870.9 909.2 - - -

Source: Majedie, SSgA, LGIM, Insight, Schroders, Hermes and BNY Mellon

*Invested as at 14 June 2013

Figures may not sum to total due to rounding

Over the quarter the market value of the assets rose by c. £38.3m as equitites posted strong returns.

Rebalancing Framework

As at 30 September 2013, the Fund was overweight property (3.6%), but underweight equities (-0.7%) and bonds (-3.0%) relative to the stated benchmarks.

The Fund was above the control range for the allocation to Majedie and below the control range for the allocation to SSgA’s UK and Overseas Equity passive mandates.



6



7

The table below summarises Deloitte’s ratings of the managers employed by the Fund and triggers against which managers should be reviewed.

Manager Mandate Triggers for Review Rating

Majedie UK Equity Further turnover within the core investment team

Re-opening the UK equity products with no clear limits on the value of assets that they would take on

1

LGIM Global Equity (passive)

Major deviation from benchmark returns

Significant loss of assets under management

1

SSgA UK and International Equity (passive)

Major deviation from benchmark returns

Significant loss of assets under management

n/a

Insight Sterling Non-Gilts Departure of any of the senior members of the investment team

Steps to broaden their product offering beyond the current UK and European focus without first bringing in the additional expertise

1

Insight Fixed Interest Gilts (Passive)

n/a

Hermes Property Significant growth in the value of assets invested in the fund

Changes to the team managing the mandate

2

Standard Life

Property Growth in the value of the Long Lease Property Fund above £1.5bn

Departure of the fund manager

1

* The Provisional rating is applied where we have concerns over changes to an investment manager

Majedie UK Equity

Total AUM increased over the quarter to £7.7bn, largely reflecting the positive performance of equity markets.

Majedie has taken the decision to re-open Tortoise on a selective basis, moving the mandate from being UK focused to having more of a global flavour. With this broadening of the mandate, Majedie believes that there is sufficient capacity to allow the fund to grow to around £1bn.

Deloitte view – Following the recent appointment of Richard Staveley to work alongside Adam Parker, focusing on small and mid cap stocks, we have had a series of meetings with representatives of the organisation. While we will want to monitor closely the developments, we are comfortable with Majedie and rate them positively for UK equity mandates.

LGIM

Legal & General Investment Management total assets under management amounted to £433bn as at 30 June 2013. The passive index funds accounted for £262bn.

There were no changes to the passive team over the quarter. There were no changes to the passive processes over the quarter.

Deloitte View: We continue to rate Legal & General’s passive capabilities positively.

SSgA Passive UK and International Equity

Assets invested in the UK Equity Fund and the International Equity Fund were c. £10bn and £1.75bn respectively as at 30 September 2013.

SSgA is currently focussing on reviewing the organisation structure to align its business with clients’ requirements and as a consequence several changes have been made within the active equity and fixed income teams.

Within Active management the enhanced equities and active equities teams were merged along with the advanced research team. This merger lead to a few positions being made redundant. SSgA is in the process of reviewing its offering in this space.

The Fixed Income and Cash teams were merged under a single leadership to form the FIG group. This was done mainly to ensure better collaboration between these teams.

3 Summary of Manager Ratings



8

There were no notable leavers or joiners over the quarter except a few new hires into the growing LDI team.

Deloitte view - While we do not have any major concerns about SSgA’s passive capabilities, we would be keen to monitor the performance of the International Equity Fund which has underperformed over the last 3 years.

Insight

The total AUM as at 30 June 2013 was £256bn. Insight continued to grow their business, adding around c. £27bn of assets since over the quarter through a mixture of existing clients extending liability hedging programs and new business. Tim Whitehead, Credit portfolio manager left insight to pursue opportunities in Thailand over the quarter. Tim is being replaced by Toby Kung who has joined from Schroders and was previously at Rothschild. Toby has already joined the team. A new graduate, Greg Newman, joined the team over the quarter. Deloitte view – We continue to rate Insight positively for its bond and LDI capabilities.



9

SSgA has been appointed to manage two passive equity portfolios, with the objective of delivering performance in line with the stated benchmarks. The manager is remunerated on a fixed fee based on the value of assets.

4.1 Passive UK equity – Investment Performance to 30 September 2013

(1) Estimated by Deloitte

Source: SSgA.

Inception date taken as 30 May 2008 (prior to that the mandate was an active equity mandate). The portfolio aims to track the benchmark within tracking error tolerance range two years out of three.

The SSgA UK equity fund has performed broadly in line with its benchmarks over various time periods

4 SSgA – Passive Equity

Last Quarter (%)

Last Year (%)

Last 3 Years (%)

Since Inception (% p.a.)1

Tracking Error Tolerance

SSgA – Gross of fees 5.6 19.0 10.2 6.0 -

Net of fees1 5.6 19.0 10.1 5.9 -

FTSE All-Share Index 5.6 18.9 10.1 5.9 -

Relative 0.0 0.1 0.1 0.1 +/- 0.25% p.a.



10

4.2 Passive International equity – Investment Performance to 30 September 2013

(1) Portfolio and benchmark are 50% currency hedged from 9 March 2011.


Source: SSgA

Inception date taken as 10 March 2011

The SSgA International equity fund has marginally underperformed its benchmark. SSgA attributes this underperformance to the different way that it manages the currency hedging compared to the benchmark. When viewed against other similar passive funds available in the market, SSgA’s performance is disappointing.

Last Quarter 1(%)

Last Year (%)


Tracking Error Tolerance

SSgA – Gross of fees 3.5 20.3 8.1 -

Net of fees 3.5 20.2 8.1 -

FTSE World ex UK1 3.7 20.5 8.3 -

Relative -0.2 -0.3 -0.2 +/- 0.50% p.a.



11

LGIM was appointed to manage a passively managed global equity portfolio from the 31 October 2012, with the objective of delivering performance in line with the stated benchmarks. The manager is remunerated on a fixed fee based on the value of assets.

5.1 Passive Global Equity – Investment Performance to 30 September 2013


Source: LGIM

Inception date taken as 1 November 2012 (prior to that the mandate was an active equity mandate). The portfolio aims to track the benchmark .

The investment objective of the fund is to track the performance of the FTSE AW-World Index (less withholding tax if applicable) - GBP Hedged (with the exception of advanced emerging markets) to within +/-0.5% p.a. for two years out of three.

The LGIM fund has performed in line with the benchmark over the quarter and since the inception of the mandate.

5 LGIM – Passive Global Equity

Last Quarter (%)

Since inception

(%)1

LGIM – Gross of fees 6.0 17.6

Net of fees 6.0 17.4

FTSE AW-World Index - GBP Hedged 6.0 17.5

Relative 0.0 0.1



12

Majedie was appointed to manage an actively managed segregated UK equity portfolio. The manager’s remuneration is a combination of a fixed fee, based on the value of assets of approximately 0.37% p.a., and a performance related fee of 20% of the outperformance which is payable when the excess return of the portfolio over a rolling 3 year period is more than 1% p.a.

6.1 Portfolio Monitoring Summary

Item Monitored Monitoring Outcome

Portfolio Guidelines Tracking error range: 2% - 6% p.a. 3 year predicted tracking error of 3.40% p.a.1

Performance Objective Aims to outperform the FTSE All-Share Index by 2% p.a. over rolling 3 year periods (net of fees).

Yes. Outperformed the target by 3.9% p.a.over the 3 year period.

1Provided by manager.

6.2 Investment Performance to 30 September 2013

Source: Majedie. Target estimated by Deloitte Inception date taken as 31 May 2006.

Majedie outperformed the benchmark over the quarter, returning 9.0% against a benchmark of 5.6%. Over the longer time frames of one year, three years and since inception the manager has outperformed its target by 10.1%, 3.9% and 2.9% p.a. respectively.

The overweight position in Koninklijke Kpn (Dutch Telecom), Nokia and RBS contributed to performance over the quarter. Conversely the overweight holding in BP detracted from performance. Hewlett-Packard gave back some returns over the quarter, though it detracted from performance.

6 Majedie – Active UK Equity

Last Quarter (%)

Last Year (%) Last 3 Years (% p.a.)

Since Inception (% p.a.)

Majedie – Gross of base fees 9.0 31.4 16.3 11.3

Net of base fees 8.9 30.8 15.9 10.9

FTSE All-Share Index 5.6 18.9 10.1 6.0

Target 6.2 21.3 12.4 8.4



13

Insight was appointed to manage two bond portfolios – an actively managed corporate bond portfolio and a passively managed gilt portfolio. The manager’s fee is based on the value of assets, with the fees for the actively managed portfolio equivalent to 0.24% pa and 0.1% pa for the passive portfolio.

7.1 Insight – Active Non Gilts

7.1.1 Portfolio Monitoring Summary

Item Monitored Monitoring Outcome

Performance Objective Aims to outperform the iBoxx Sterling Non-Gilt 1-15 Years Index by 0.9% p.a. over rolling 3 year periods (gross of fees)

Yes, outperformed the benchmark by 0.9% p.a. over the 3 year period to 30 September 2013 (gross of fees).

7.1.2 Investment Performance to 30 September 2013


Source: Insight

Inception date taken as 1 September 2006.

Over the quarter the portfolio outperformed the benchmark by 0.3%. Over the one year and three years to 30 September 2013 Insight has outperformed the benchmark by 0.5% and 0.9% p.a. respectively.

7 Insight – Bonds

Last Quarter (%)



Insight (Non-Gilts) – Gross of fees 2.0 4.2 6.6 5.8

Net of fees 1.9 4.0 6.4 5.6

iBoxx £ Non-Gilt 1-15 Yrs Index 1.7 3.7 5.7 5.3

Target1 1.9 4.6 6.6 6.2



14

7.1.3 Attribution of Performance

Source: Insight

Security selection, currency and credit strategy positioning were the main contributors to performance over the quarter.

7.2 Insight – Passive Government Bonds

6.2.1 Investment Performance to 30 September 2013

Source: Insight, Deloitte estimates

Inception date taken as 31 May 2008.

The gilt portfolio has outperformed in line with its benchmark over the quarter and outperformed its benchmark by 0.2% over the one year. The three year periods to 30 September 2013 performed in line with the benchmark.

7.3 Duration of portfolios

Source: Insight and Northern Trust

The duration of the bond portfolio is shorter relative to that of the Fund’s liabilities and as such the bond portfolio is only providing limited protection against interest rate risk.

Last Quarter (%)


Since Inception (% p.a.)

Insight (Passive Bonds) – Gross 0.0 -2.0 3.0 5.9

Net of fees 0.0 -2.1 2.9 5.8

FTSE A Gilts up to 15 Yrs Index 0.0 -2.2 3.0 6.0

Relative 0.0 0.2 0.0 -0.1

30 June 2013 30 September 2013

Fund (Years) Benchmark (Years) Fund (Years) Benchmark

(Years)

Non-Government Bonds (Active) 5.5 5.4 5.4 5.4

Government Bonds (Passive) 4.8 4.8 4.5 4.7



15

Hermes was appointed to manage a core UK property portfolio, where the fees are based on the value of assets invested in the fund, equivalent to 0.4% of the portfolio.



Source: Hermes

The Trust outperformed its benchmark by 0.2% over the quarter with performance driven equally by income distribution and capital growth.

The main contributors to the outperformance over the quarter were the Trust’s holdings in the City of London and ‘Other’ sub sectors.

At the quarter end the Gross Asset Value of the Trust increased to £842.8m from £821.5m, with a distribution yield of 5.11%.

8.2 Sales and Purchases

There were several transactions over the quarter, including:

• The purchase of Plantation Wharf, Battersea, London SW11, an office investment located on a prime riverside site in Battersea, South London for a price of £20 million, reflecting an initial yield of 6.9%. The property has the potential for change of use to residential through the recent changes in the rules on Permitted Development.

• The purchase of 31 Great George Street, Bristol for £9.2 million, reflecting an initial yield of 10.5%. • The purchase of Thomas Road Industrial Estate, London E14 for a price of £7.2 million, reflecting an

initial yield of 7.0%. • There were a number of dsiposals during Q3. The most significant of these were the sale of the Fife

Leisure Park, Dunfermline (£26.0 million) and the Trust’s JV shopping centre investment at New Bond Street, Weymouth (£15.1 million)

8 Hermes – Property

Last Quarter (%) Last Year (%) Since Inception (% p.a.)1

Hermes – Gross of fees 2.5 6.5 5.0

Net of fees 2.4 6.0 4.6

Benchmark 2.3 3.9 4.9

Target 2.4 4.4 5.4



16



17

Standard Life Investments (“SLI”) was appointed to manage a UK property portfolio investing in core assets where the focus is on properties with long leases let to high quality tenants. The fees are based on the value of assets invested in the fund, equivalent to 0.5% of the portfolio.



Source: Standard Life Investments

Benchmark used at the portfolio level is the IPD UK Monthly Property Index.

• The SLI Long Lease Property Fund returned 3.0% over the third quarter, outperforming the IPD UK Monthly Property Index by 2.0%. The Fund continues to benefit from its focus on prime properties with secure income streams.

9.2 Portfolio activity

• Over the third quarter, SLI completed the sale of 20 Manchester Square to Invesco for £70.6m, equivalent to a yield of 4.4%p.a. The property was sold to take advantage of significant price appreciation in West End offices after the lease length fell below 8 years. 20 Manchester Square was the Fund’s single biggest asset and was the largest contributor to the Fund’s outperformance over the third quarter.

• SLI used the proceeds of 20 Manchester Square to fund the purchase of the QVC headquarters at Chiswick Park. The asset was purchased for £71m, equivalent to a net intial yield of 4.7% p.a. QVC is on a 19.5 year lease, with fixed five yearly rent increases of 2.5% p.a. SLI believes that the current rent is low compared to other properties in Chiswick Park and will look to improve the level of rental income in the future.

• SLI confirmed the purchase of a 630,000 square-foot industrial warehouse development in Warrington with Travis Perkins for £53m, equivalent to a net initial yield of 5.6%p.a. The development is expected to complete in July 2014, at which point, Travis Perkins will be on a 25 year lease with 5 year RPI-linked rent reviews capped at 3% p.a.

• SLI is also due to complete the purchase of a car park development in Manchester which will be let to Q parks. SLI has committed £17.3m, equivalent to a yield of 5.5%p.a. The deal was sourced off-market and Q-Parks will be on a 55 year lease with annual RPI increases rent reviews with a floor of 2.5% and a cap of 4%.

• 2 further purchases are expected to complete soon – both are developments which are expected to complete in July 2014. The first is a £32m commitment to a Poundland in Harlow. Poundland will be on a 20 year lease with RPI linked rent reviews capped at 2.5%. The second development property is in Glasgow and will be let to Brake Brothers on a 25 year lease with RPI linked rent reviews capped at 5%.

• SLI sold three Volkswagen car showrooms over the third quarter. The leases were approaching the 10-year mark with no opportunity to extend. The combined sale price for the three assets was 1.5% higher than last quarter’s valuation.

9 Standard Life Investments – Long Lease Property

Last Quarter (%) Since Inception (% p.a.)1

Standard Life – Gross of fees 3.0 N/A

Net of fees N/A

Benchmark 1.0 N/A

Target N/A



18

The tables in this Appendix detail the benchmarks and outperformance targets, for the Total Fund and each individual manager.

Total Fund

Inception: 1 June 2006. Current benchmark allocation effective from 7 June 2011.

Asset Class Allocation Benchmark

UK Equity 33.8% FTSE All-Share Index

Overseas Equity 20.6% FTSE World ex-UK (50% currency hedged)

Global Equity 20.6% FTSE AW-World Index (1)

Sterling Non- Gilts 15.0% iBoxx Sterling Non-Gilt 1-15 Years Index

Fixed Interest Gilts 5.0% FTSE A Gilts up to 15 Years Index

Hermes Property 5.0% IPD UK PPFI Balanced PUT Index

Standard Life Investments - IPD UK Monthly Property Index

FTSE British Government All Stocks Index +2%

Total 100.0% (1) GBP hedged with the exception of advanced emerging markets.

Rebalancing Policy

Using the SIC’s quarterly meeting schedule to review any rebalancing activity:

If the cash outflows are to be funded:

• Cash outflow requirements are met by disinvesting from the asset class most overweight relative to its Central Benchmark Allocation (“CBA”) position.

• Once the asset class overweight has been eliminated, assets would be disinvested proportionately from the asset classes according to the CBA.

If cash inflows are to be invested:

• Cash inflows are invested in the asset class most underweight relative to its CBA position.

• Once the asset class underweight has been eliminated, assets would be disinvested proportionately from the asset classes according to the CBA.

If the allocations exceed the upper (or lower) tolerance limit this triggers a rebalancing review with a view to:

• Rebalance exposure back to the mid-point of the CBA and upper (or lower) tolerance limit.

• Use the proceeds to rebalance the corresponding underweight asset class/investment manager.

Appendix 1: Fund and Manager Benchmarks



19

SSgA: 16.9% of the Total Fund Assets (Inception: 3 1 May 2006. Current strategy inception: 30 May 2008 )

Asset Class Benchmark Outperformance Target Tracking Error (1)

UK Equity FTSE All-Share Index To match the benchmark Up to +/- 0.25% p.a.

(1) Aim to track benchmark to within tracking error tolerance range two years out of three.

SSgA: 20.6% of the Total Fund Assets (Inception: 11 March 2010)

Asset Class Benchmark Outperformance Target Tracking Error

Overseas Equity FTSE World ex-UK (50% currency hedged)(2)

To match the benchmark Up to +/- 0.25% p.a.

(2) Aim to track benchmark to within tracking error tolerance range two years out of three.

Currency hedge applied from 9 March 2011.

Majedie: 16.9% of the Total Fund Assets (Inception: 31 May 2006)

Asset Class Benchmark Outperformance Target (1) Tracking Error (1)

UK Equity FTSE All-Share Index +2.0% p.a. (net of fess) 2.0% - 6.0% p.a.

(1) Over rolling 3 year period

LGIM: 20.6% of the Total Fund Assets (Inception: 01 November 2012)

Asset Class Benchmark Outperformance Target Tracking Error

Global Equity FTSE AW-World Index-GBP Hedged

To match the benchmark Up to +/- 0.5% p.a.

Insight: 20.0% of the Total Fund Assets (Inception: 31 May 2006)

Asset Class Allocation Benchmark Outperformance

Target (1)

Tracking Error

Fixed Interest Gilts 25% FTSE A GILTS up to 15 Yrs Index To match benchmark -

Non-Gilts 75% iBoxx £ Non-Gilt 1-15 Yrs Index + 0.90% p.a.

(gross of fees)

0.0 – 3.0% p.a. (1)

Total 100% +0.54% p.a.

(gross of fees)

-

Over rolling 3 year period

Hermes: 5.0% of the Total Fund Assets (Inception: 2 6 October 2010)

Asset Class Benchmark Outperformance Target (1) Tracking Error

Property IPD UK PPFI Balanced PUT Index

+0.5% p.a. (net of fess) -


Standard Life: 5.0% of the Total Fund Assets (Incep tion: 26 October 2010)

Asset Class Benchmark Outperformance Target (1) Tracking Error

Property IPD UK Monthly Property Index.

+0.5% p.a. (net of fess) -




20

Based on our manager research process, we assign ratings to the investment managers for specific products or services. The ratings are based on a combination of quantitative and qualitative factors, where the inputs for the qualitative factors come from a series of focused meetings with the investment managers. The ratings reflect our expectations of the future performance of the particular product or service, based on an assessment of:

• The manager’s business management;

• The sources of ideas that go to form the portfolio (“alpha generation”);

• The process for including the ideas into the portfolio (“alpha harnessing”); and

• How the performance is delivered to the clients.

On the basis of the research and analysis, managers are rated from 1 (most positive) to 4 (most negative), where managers rated 1 are considered most likely to deliver outperformance, net of fees, on a reasonably consistent basis. Managers rated 1 will typically form the basis of any manager selection short-lists.

Where there are developments with an investment manager that cause an element of uncertainty we will make the rating provisional for a short period of time, while we carry out further assessment of the situation.

Appendix 2: Manager Ratings



21

• Past performance is not necessarily a guide to the future.

• The value of investments may fall as well as rise and you may not get back the amount invested.

• Income from investments may fluctuate in value.

• Where charges are deducted from capital, the capital may be eroded or future growth constrained.

• Investors should be aware that changing investment strategy will incur some costs.

• Any recommendation in this report should not be viewed as a guarantee regarding the future performance of the products or strategy.

Our advice will be specific to your current circumstances and intentions and therefore will not be suitable for use at any other time, in different circumstances or to achieve other aims or for the use of others. Accordingly, you should only use the advice for the intended purpose.

Our advice must not be copied or recited to any other person than you and no other person is entitled to rely on our advice for any purpose. We do not owe or accept any responsibility, liability or duty towards any person other than you.

Deloitte Total Reward and Benefits Limited is authorised and regulated by the Financial Conduct Authority.

Appendix 3: Risk Warnings

This document is confidential and prepared solely for your information. Therefore you should not, without our prior written consent, refer to or use our name or this document for any other purpose, disclose them or refer to them in any prospectus or other document, or make them available or communicate them to any other party. No other party is entitled to rely on our document for any purpose whatsoever and thus we accept no liability to any other party who is shown or gains access to this document.

Deloitte Total Reward and Benefits Limited. Registered office: Hill House, 1 Little New Street, London EC4A 3TR, United Kingdom. Registered in England and Wales No 3981512.

Deloitte Total Reward and Benefits Limited is a subsidiary of Deloitte LLP, the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte Total Reward and Benefits Limited is authorised and regulated by the Financial Conduct Authority.

Member of Deloitte Touche Tohmatsu Limited

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City of Westminster Superannuation Fund Investment Performance Report to 30 September 2013 · 2014....

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