STATEMENT OF INVESTMENT PRINCIPLES

1 Agenda item 3- Appendix 1 STATEMENT OF INVESTMENT PRINCIPLES Introduction 1. West Sussex County Council is responsible for administering the West Sussex County Council Pension Fund under the Local Government Pension Scheme (LGPS) Regulations. The Council has a duty to ensure that scheme funds not immediately required to pay pension benefits are suitably invested and to take proper advice in the execution of this function. It has delegated responsibilities to the Pensions Panel.

2 Further details about the governance arrangements can be found in the Fund s Governance Policy and Governance Compliance STATEMENT . 2. This STATEMENT of INVESTMENT PRINCIPLES (SIP) outlines how INVESTMENT decisions are made, the types of INVESTMENT held, fees paid, risk and the Fund s approach to corporate governance. 3. In response to the Treasury report Updating the Myners PRINCIPLES : A Response to Consultation (October 2008) LGPS Administering Authorities are required to prepare, publish and maintain statements of compliance against a set of six PRINCIPLES for pension fund INVESTMENT , scheme governance, disclosure and consultation.

3 These PRINCIPLES have been adopted by the Department for Communities and Local Government (DCLG) and replace the ten Myners PRINCIPLES published in 2001. Regulations have been issued requiring Administering Authorities to include in their SIP the extent to which they comply with these, giving reasons for non-compliance. The West Sussex Pension Fund s STATEMENT is attached (Appendix 1). Decision Making Process 4. The Pensions Panel comprises seven County Councillors, including the Cabinet Member for Finance and Resources (although not formally required), together with three non-voting representatives; one from the district councils, one from the other major employers (the Sussex Police Authority representing the majority of active scheduled body members) and one from the staff side, nominated by Unison.

4 5. The Panel is responsible for: Appointment of professional and specialist INVESTMENT advisers and managers on a consultancy basis. Consideration of the recommendations of the advisers and managers including the Fund s INVESTMENT strategy. Determination of and overseeing the County Council s INVESTMENT policy. Consideration of and response to key scheme governance, funding and ad ministration issues, including responses to statutory consultations. Overseeing the management of the Pension Fund investments.

5 Monitoring the Fund s performance. Agenda item 3- Appendix 1 Ensuring that arrangements are in place for consultation and communication with stakeholders as necessary. Establishing member groups to review aspects of INVESTMENT strategy or to undertake work on key themes and to report back to the Panel. 6. In doing so the Panel will review and approve on a regular basis the content of the SIP and to monitor compliance of the INVESTMENT arrangements with the SIP and the Myners PRINCIPLES .

6 7. The Panel is supported by an independent fund adviser and the Director of Finance and Assurance and his staff in the execution of its responsibilities. 8. Further details can be found in the Fund s Governance Policy STATEMENT , which can be downloaded from the Fund s website ( ). Investments 9. The primary objective of INVESTMENT policy is the maximisation of the Fund s long-term return, consistent with the degree of risk appropriate for a pension fund, in order to minimise the level of employer contributions to the Fund.

7 10. The Fund s customised benchmark was determined by setting an asset allocation appropriate for the Fund s liabilities, based on an asset/liability study carried out by the actuary. The asset/liability study considers the risk tolerance of the authority, ie the extent to which it is prepared to take on a higher level of risk in pursuit of higher returns, in determining the customised benchmark. An INVESTMENT strategy of lowest risk, but not necessarily the most cost effective in the long-term, would be 100% INVESTMENT in index-linked government bonds.

8 However, the Fund maintains significant exposure to equities in pursuit of potentially higher returns in the longer-term than from index-linked bonds, consistent with its relatively immature liabilities and strength of employers covenants. Asset/liability studies are carried out after the triennial actuarial valuations. 11. Risk is also constrained by diversification of managers and assets, scrutiny of monitoring of performance, asset allocation and risk and INVESTMENT restrictions within the INVESTMENT Manager Agreements.

9 The fund managers are required to implement appropriate risk management measures and to operate in such a way that the probability of undershooting the performance target is kept within acceptable limits. 12. The fund managers have to comply with The Local Government Pension Scheme (Management and INVESTMENT of Funds) Regulations 1998, as amended. The relevant restrictions are set out in Appendix 3. Agenda item 3- Appendix 1 13. Based on the customised benchmark, the Actuary makes assumptions about future expected returns, which is based on long term historical performance.

10 More details about the actuarial assumptions can be found in the Fund s Funding Strategy STATEMENT and in the Actuarial Valuation report. The movement of assets and liabilities is reported to the Panel quarterly. 14. The performance target at the Total Fund level is to outperform the benchmark by 1% per annum over rolling 3 year periods. However each manager has a detailed mandate that sets out clear objectives and timescales for performance assessment. 15. Performance for all mandates is calculated by an independent performance measurement company and is reported to the Panel quarterly.