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Investment Policies

Statement of Investment Principles

The Statement of Investment Principles (PDF - 420 KB) (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 will be reviewed and updated in 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 revised Statement of Investment Principles (PDF - 420 KB). A recent change in voting action has prompted a review of the SIP which will happen in 2008.

Given the increased global orientation of our investments, LPFA board approved the voting of all equities, both UK and overseas. Initially Goldman Sachs was requested to vote the holdings in our portfolio managed by them in accordance with its corporate governance policy. In May 2007 it was decided to extend this request to all of our global equity managers. From July 2007, Newton, Goldman Sachs, 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 are working with the fund managers to produce a consolidated report of their voting on our behalf, explaining the rationale for voting against company resolutions. This will form part of the regular quarterly reporting to the Investment Committee. These details will be posted on the website when available.

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 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 social, environmental and ethical issues can have a favourable effect on the financial performance of a company and improve investment returns to the shareholder. A framework for good practice was developed in an environmental policy (PDF - 16 KB) published in 2004.

This framework is further developed in Section 6 and Annex 1 of the published Statement of Investment Principles (PDF - 420 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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