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Investment Policies

Statement of Investment Principles

The Statement of Investment Principles (PDF 204KB -opens new window) (SIP) provides an overview of the responsibilities, process and conduct in the management of the LPFA pension fund investments. The SIP was published as a requirement of The Local Government Pension Scheme (Management and Investment of Funds) (Amendment) Regulations 1999.

The LPFA Board reviews the SIP regularly and publishes a revised version when significant changes occur (the current revision was published on the 2nd February 2006). The most recent changes relate to the approach to social, environmental and ethical considerations. It is being reviewed and updated in November 2008 to reflect the 2007 valuation changes.

Corporate Governance

Voting Policy

Voting action is an integral part of being an active and responsible investor. LPFA's policy in this respect is reviewed, revised and published in a Statement of Investment Principles (PDF 204KB - opens new window ). A new Statement of Investment Principles is being prepared in the second half of 2008.

Given the increased global orientation of our investments, LPFA board approved the voting of all equities, both UK and overseas. In 2007 it was decided to request that all of our global equity managers vote on our behalf. Consequently Newton, MFS and Blackrock vote LPFA's holdings globally in accordance with their corporate governance policies.

Voting Details

All our fund managers use a mixture of ISS Governance Services voting policies and their own governance teams to vote LPFA holdings. We work with the fund managers to produce a consolidated report of their voting on our behalf, explaining the rationale for voting against company resolutions and detailing any on going corporate engagements. This forms part of the regular quarterly reporting to the Investment Committee.

US Class Actions

The LPFA has a large exposure to the US market, through direct investment in US-listed companies and from investment in UK-listed companies that have operations in the US. A number of high-profile corporate collapses over the past few years have highlighted the weakness of US corporate governance. As such, a US legal firm, Coughlin Stoia Geller Rudman and Robbins LLP, was retained in 2004 to provide portfolio monitoring of the scheme's US holdings to identify, and potentially thereafter seek to recover losses due to breaches of US securities laws (generally called ‘Class Actions').

Social, Environmental and Ethical Considerations

The LPFA Board is mindful of its fiduciary duty to obtain the best possible financial return on the investments of the pension fund it administers within a suitable degree of risk. However, the exercise of good practice in terms of environmental, social and governance (ESG) issues can have a favourable effect on the financial performance of a company and improve investment returns to the shareholder. To this end, LPFA has included the need to promote best practice in environmental, social and governance policy in the LPFA Investment Principles. LPFA hopes to develop further its ESG policy and is in the process of engaging a new Investment Manager whose task is to develop and implement the ESG policy for the benefits of the LPFA members. A framework for good practice was developed in an environmental policy (MS Word - 79 KB) .

Risk Management

LPFA manages the underlying investment risk to ensure it understands the scheme's overall risk exposure and to avoid undue losses. The primary risk faced by the scheme is that it does not have sufficient assets to meet its pension obligations as they fall due. This long-term risk is managed by the LPFA conducting asset/liabilities studies from which a long-term investment strategy is adopted to achieve the required rate of return and to minimise the risk of adverse outcomes.

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