Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report

Decision Maker:

Pension Fund Panel

Date of Decision:

21 July 2009

Decision Title:

Northern Trust - annual report

Decision Reference:

826

Report From:

County Treasurer

Contact name:

Anthony Dodridge

Tel:

01962 847407

Email:

[email protected]

1. Executive Summary

1.1. This is the second annual report to the Panel on Northern Trust's performance as custodian, following the first report in May 2008.

2. Provision of custody services

2.1. Northern Trust were appointed with effect from 1 August 2006 as the Pension Fund's first sole custodian following a tender process. Their contract runs for a seven-year period ending on 31 July 2013, subject to satisfactory performance. Previously, custody services had been provided by each fund manager's nominated custodian.

2.2. The custody services provided by Northern Trust to the Fund include:

    · safekeeping of assets

    · settlement of trades

    · collection of income from dividends and interest

    · tax reclamation services

    · corporate action processing

    · proxy voting

    · foreign exchange

    · cash management

    · investment manager reconciliation

    · consolidated investment accounting reports

    · regulatory reporting

    · transaction cost analysis reporting

    · performance measurement

    · access for Hampshire's staff to Northern Trust's on-line reporting facility, `Passport'

    · stock lending (although programme suspended in September 2008).

3. Quality of service

3.1. In overall terms, the Fund has continued to receive good quality custodian services from Northern Trust over the past year.

3.2. Northern Trust's comprehensive range of custodian services has enabled the Fund to continue to manage its affairs with a focus on returns, reducing risk, governance and compliance.

3.3. Good working relationships are in place with their client liaison staff, who are both responsive and able to assist in resolving administrative problems and reconciling records.

3.4. It should be noted that that the $7.8m securities on loan to Lehman Bros at the time of its collapse were recovered within a few days by Northern Trust under its collateral arrangements to mitigate the risk of any capital loss, in direct response to the County Treasurer's instruction to suspend the Pension Fund's stock lending programme being undertaken by Northern Trust following the collapse of Lehman Bros in mid September 2008.

3.5. Northern Trust provides information in both a timely and accurate manner. There are good reporting systems through which consolidated financial information, reporting and accounting of the Fund's holdings, transactions and performance monitoring can be readily accessed.

3.6. The custodian services provided by Northern Trust have increased in complexity following the Fund portfolio's diversification into emerging markets, bonds, private equity and hedge funds. In particular, private equity and hedge fund reporting was implemented during 2008/09 to provide enhanced information on these specialist asset classes.

3.7. There is ongoing liaison to maximise the facilities offered by Northern Trust.

3.8. The County Treasurer will continue to monitor Northern Trust's performance and will report annually to the Panel.

4. Fees

4.1. The fees incurred in 2008/09 for the custodian services provided by Northern Trust amounted to £298,000, which were lower than those of the previous year due to the significant fall in market value of assets. The breakdown of these fees over asset classes is as follows:

                  2007/08 2008/09

                  £'000 £'000

      Global equities 207 147

      Global bonds 87 91

      Alternatives 10 19

      Property 15 17

      UK equities 22 16

      UK bonds 3 4

      Cash 1 2

      Currency hedging - 2

      Total 344 298

4.2. The custody fees are based on a charge per portfolio administered, the market value of the assets (variable by country), a charge per transaction (variable per country), foreign exchange deals, third party fixed deposits, performance analysis and reporting. The level of fees reflects the increased diversification of global equities into emerging markets, which are much less well developed and transactional costs are significantly higher.

5. Recommendation

5.1. That the satisfactory performance and quality of global custodian services being provided by Northern Trust be noted.

CORPORATE OR LEGAL INFORMATION:

Links to the Corporate Strategy

Hampshire safer and more secure for all:

yes/no

Corporate Business plan link number (if appropriate):

Maximising well-being:

yes/no

Corporate Business plan link number (if appropriate):

Enhancing our quality of place:

yes/no

Corporate Business plan link number (if appropriate):

OR

This proposal does not link to the Corporate Strategy but, nevertheless, requires a decision for the Pension Fund Panel to note the satisfactory performance and quality of global custodian services being provided by Northern Trust.

Other Significant Links

Links to previous Member decisions:

  

Title

Reference

Date

     
     

Direct links to specific legislation or Government Directives

 

Title

Date

   
   

Section 100 D - Local Government Act 1972 - background documents

 

The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report. (NB: the list excludes published works and any documents which disclose exempt or confidential information as defined in the Act.)

 

Document

Location

None

  

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

1.1. Equality objectives are not considered to be adversely affected by the proposals in this report.

2. Impact on Crime and Disorder:

2.1. The proposals in this report are not considered to have any direct impact on the prevention of crime.

3. Climate Change:

a) How does what is being proposed impact on our carbon footprint / energy consumption?

No specific impact.

b) How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

No specific impact.