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London Borough of Hammersmith

& Fulham Pension Fund

Investment Performance Report to 30

June 2016 Deloitte Total Reward and Benefits Limited August 2016

London Borough of Hammersmith and Fulham

Investment Report to 30 June 2016

2

Contents

1 Market Background 1

2 Performance Overview 3

3 Total Fund 4

4 Summary of Manager Ratings 8

5 Majedie – UK Equity 12

6 Legal and General – Global Equity 13

7 Ruffer – Absolute Return 14

8 Insight – Bonds Plus 15

9 Partners Group – Multi Asset Credit 16

10 Oak Hill Advisors – Diversified Credit Strategies Fund 18

11 Partners Group – Direct Infrastructure 19

12 M&G – Inflation Opportunities 21

13 Standard Life Investments – Long Lease Property 22

Appendix 1 – Fund and Manager Benchmarks 24

Appendix 2 – Manager Ratings 25

Appendix 3 – Risk warnings & Disclosures 26



1

1 Market Background

1.1 Three months to 30 June 2016

Equity markets

The UK equity market delivered a positive return over the second quarter of 2016, with the FTSE All Share

Index delivering a return of 4.7%. There was considerable volatility experienced over the period, mainly due to

the EU referendum, as markets reacted to the changing outcomes of the polls in the run up to the vote and the

UK’s ultimate decision to leave the EU. The fall in equity markets in the immediate aftermath of the result

corrected a rally experienced in the run up to the vote as the market had anticipated, and priced in, a ‘Remain’

result. However, over the final few days of the quarter the equity market rallied again to pre-referendum levels,

with defensive stocks performing well alongside companies which export globally which appeared more

attractive due to the depreciation of sterling.

Large UK companies outperformed smaller companies over the second quarter, with the FTSE 100 Index

returning 6.5% while the FTSE Small Cap Index delivered a negative return of -0.6%. Small cap stocks fell in

value to a greater extent following the result of the referendum and did not rally to the same extent as larger

more stable companies in the remainder of the quarter. There was a wide spread of returns experienced at the

sector level. Similar to last quarter, the top performing sectors were Oil & Gas (22.6%) and Basic Materials

(14.9%) which continued to benefit from a rebound in the price of oil which rose above $50 a barrel as well as

benefiting from the depreciation of sterling. The poorest performing sectors were Consumer Services (-8.5%)

and Financials (-4.2%), with their more UK-centric focus.

Global equity markets outperformed the UK in sterling terms (8.8%) but underperformed the UK in local

currency terms (1.3%) over the second quarter. Currency hedging was therefore detrimental as sterling

depreciated against a basket of global currencies, most significantly against the Japanese yen and the dollar. At

a regional level, the US achieved the highest return, delivering 10.3% in sterling terms and 2.6% in local

currency terms. Japan was the poorest performing region, delivering a return of -7.7% in local currency terms,

however, the significant depreciation of sterling against the Japanese yen meant that sterling investors in

Japanese equities without currency hedging achieved a return of 8.8%.

Bond markets

The uncertainty and volatility caused by the EU referendum led investors to look for safe haven assets and,

despite the credit rating of the UK suffering following the outcome of the referendum, there was an increase in

demand for UK government bonds. As a result, UK nominal gilts delivered positive returns over the second

quarter, with the All Stocks Gilts Index returning 6.2%, as yields fell significantly across all maturities. Real

yields on UK index-linked gilts fell further into negative territory over the period, with the Over 5 Year Index-

linked Gilts Index returning 11.1%. Credit spreads widened slightly over the quarter but this was more than

offset by the fall in gilt yields resulting in corporate bonds delivering a positive return over the period, with the

iBoxx All Stocks Non Gilt Index returning 4.3%.

4.7

8.8

10.3 10.3

4.4

8.8 8.59.5

6.2

11.8 11.1

4.3

1.41.32.6 2.6

-0.5

-7.7

2.1 1.9

-10

-5

0

5

10

15

Perf

orm

ance %

3 months to 30 June 2016

Equities (Sterling) Equities (Local) Bonds Property



2

1.2 Twelve months to 30 June 2016

Equity markets

Over the 12 months to 30 June 2016, the FTSE All Share Index has delivered a positive return of 2.2%.

Performance was volatile and continued to vary significantly across sectors. Financials was the poorest

performing sector over the year (-18.8%) whilst the Consumer Goods sector was the highest performer

(20.7%). Global equity markets outperformed the UK in sterling terms (14.0%) but underperformed the UK in

local currency terms (-2.2%), with currency hedging detracting.

Bond markets

UK nominal gilts delivered positive returns over the year, with the All Stocks Gilts Index returning 13.5% and

the Over 15 Year Gilts Index returning 24.1%, as gilt yields fell significantly across all maturities. Real yields

also fell significantly over the year, with the Over 5 Year Index Linked Gilts Index returning 17.0%. Despite

credit spreads widening over the year, corporate bonds delivered positive returns due to the impact of the fall

in gilt yields with the iBoxx All Stocks Non Gilt Index returning 9.0% over the period.

2.2

14.0

21.4 20.8

6.37.8 6.8

3.7

13.5

24.1

17.0

9.0 9.3

-2.2

3.2 2.9

-8.4

-23.2

-7.1 -7.5

-30

-20

-10

0

10

20

30Perf

orm

ance %

12 months to 30 June 2016

Equities (Sterling) Equities (Local) Bonds Property

London Borough of Hammersmith and Fulham Investment Report to 30 June 2016

3

2 Performance Overview 2.1 Investment Performance to 30 June 2016

Breakdown of Fund Performance by Manager as at 30 June 2016 3 month

(%)

1 year

(%)

2 year p.a.

(%)

3 year p.a.

(%)

5 year p.a.

(%) Fund Manager

Equity Mandate

Majedie 3.0 -2.9 2.4 8.1 10.1

FTSE All Share 4.7 2.2 2.4 5.8 6.3

Difference -1.7 -5.0 0.1 2.2 3.9

LGIM Global Equity Mandate** 7.9 n/a n/a n/a n/a

Custom Benchmark 7.9 n/a n/a n/a n/a

Difference 0.0 n/a n/a n/a n/a

Dynamic Asset Allocation Mandates

Ruffer 3.6 0.2 6.0 4.3 5.3

3 Month Sterling LIBOR + 4% p.a. 1.1 4.6 4.6 4.6 4.7

Difference 2.4 -4.3 1.4 -0.3 0.6

Insight 0.8 n/a n/a n/a n/a

3 Month Sterling LIBOR + 2% p.a. 0.6 n/a n/a n/a n/a


Private Equity

Invesco 8.9 19.9 22.4 19.2 18.8

Unicapital 5.8 25.6 12.5 7.2 6.6

Secure Income

Partners Group MAC -0.2 5.1 n/a n/a n/a

3 Month Sterling LIBOR + 4% p.a. 1.1 4.6 n/a n/a n/a

Difference -1.3 0.5 n/a n/a n/a

Oak Hill Advisors 4.5 -1.4 n/a n/a n/a

3 Month Sterling LIBOR + 4% p.a. 1.1 4.6 n/a n/a n/a

Difference 3.4 -6.0 n/a n/a n/a

Partners Group Direct Infrastructure 10.6 n/a n/a n/a n/a

3 Month Sterling LIBOR + 8% p.a. 2.1 n/a n/a n/a n/a


Inflation Protection

M&G 6.0 12.2 n/a n/a n/a

RPI + 2.5% p.a. 1.4 4.1 n/a n/a n/a

Difference 4.5 8.1 n/a n/a n/a

Standard Life 1.2 5.4 n/a n/a n/a

FT British Government All Stocks Index +2.0% 6.6 15.6 n/a n/a n/a

Difference -5.5 -10.2 n/a n/a n/a

Total Fund 4.3 5.0 8.3 8.7 8.8

Benchmark* 3.8 6.7 7.0 7.1 7.7

Difference 0.5 -1.6 1.3 1.5 1.2 Source: Northern Trust (Custodian). Figures are quoted net of fees and estimated by Deloitte. Differences may not tie due to rounding.

(*) The Total Assets benchmark is the weighted average performance of the target asset allocation. (**) The performance of the Global Equity mandate has been calculated using the weighted average performance of the three underlying funds.



4

3 Total Fund

3.1 Investment Performance to 30 June 2016

Source: Northern Trust. Relative performance may not sum due to rounding.

(1) Estimated by Deloitte

(2) Average weighted benchmark

Over the quarter, the Total Fund outperformed its fixed weighted benchmark by 0.5% on a net of fees basis.

Over the 12 month period, the Fund delivered a net return of 5.0%, underperforming the benchmark by 1.7%,

net of fees. The Fund remained ahead of benchmark over the three and five year periods by 1.5% p.a. and

1.1% p.a. respectively.

The chart below compares the net performance of the Fund relative to the fixed weight benchmark over the

three years to 30 June 2016, highlighting the strong relative returns over the two years from June 2013 to June

2015 – much of which can be attributed to the outperformance achieved by Majedie. Performance in the second

half of 2015 has dampened the three year outperformance figure.

-5%

-3%

-1%

1%

3%

5%

Q2 16Q1 16Q4 15Q3 15Q2 15Q1 15Q4 14Q3 14Q2 14Q1 14Q4 13Q3 13

% d

iffer

ence

from

ben

chm

ark

Total Fund Performance - last three years

Quarterly Excess Return 3 Year Rolling Excess Return

Last

Quarter

(%)

One

Year

(%)

Two

Years

(% p.a.)

Three

Years

(% p.a.)

Five

Years

(% p.a.)

Total Fund – Gross of fees 4.4 5.5 8.7 9.1 9.3

Net of fees(1) 4.3 5.0 8.3 8.7 8.8

Benchmark(2) 3.8 6.7 7.0 7.1 7.7

Net performance relative to fixed

benchmark

0.5 -1.6 1.3 1.5 1.1



5

3.2 Attribution of Performance to 30 June 2016

On a net performance basis, the Fund outperformed the composite benchmark by 0.5% over the second

quarter of 2016, with positive contributions from M&G, Ruffer and Oak Hill Advisors. The Fund’s overweight

position to Equities contributed to the overall performance as the equity markets rallied towards the end of the

quarter.

Over the year the Fund underperformed the composite benchmark by 1.6% following negative contributions by

Majedie, Ruffer, Oak Hill Advisors. Standard Life also contributed to underperformance however it should be

noted that this was largely due to the significant performance of the gilts-based benchmark. We would not

expect a long lease property mandate to keep pace with gilts in such a falling yield environment.

-0.4%

0.0%

0.3%

0.0%0.0% 0.0%

-0.1%

0.0%

0.2%

0.4%

-0.3%

0.4%

0.5%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%R

ela

tive C

on

trib

uti

on

to

To

tal Fu

nd

Perfo

rm

an

ce

Relative Contributions to Total Fund Performance - Quarter

-1.3%

0.1%

-0.5%

0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

-0.3%

0.6%

-0.4%

0.2%

-1.6%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Rela

tive C

on

trib

uti

on

to

To

tal Fu

nd

Perfo

rm

an

ce

Relative Contributions to Total Fund Performance - Annual



6

3.3 Asset Allocation

The table below shows the assets held by manager as at 30 June 2016 alongside the Target Benchmark

Allocation.

Actual Asset Allocation

Manager Asset Class 31 Mar

2016

(£m)

30 Jun

2016

(£m)

31 Mar

2016

(%)

30 Jun

2016

(%)

Benchmark

Allocation (%)

Majedie UK Equity (Active) 215.4 222.1 25.2 24.9 22.5

LGIM Global Equity

(passive) 226.1* 243.9 26.4 27.3 22.5

Total Equity 441.5 466.0 51.6 52.2 45.0

Ruffer Absolute Return 89.9 93.3 10.5 10.5 10.0

Insight Bonds Plus 64.9 65.5 7.6 7.3 10.0

Total Dynamic

Asset Allocation 154.9 158.8 18.1 17.8 20.0

Invesco Private Equity 5.7 6.2 0.7 0.7 0.0

Unicapital Private Equity 3.5 3.8 0.4 0.4 0.0

Total Private

Equity 9.3 10.0 1.1 1.1 0.0

Partners

Group

Multi Asset Credit 52.1 52.1 6.1 5.8 7.5

Oak Hill

Advisors

Diversified Credit

Strategy 47.6 49.8 5.6 5.6 7.5

Partners

Group

Direct Infrastructure 1.4 4.1 0.2 0.5 5.0

Secure Income 101.1 106.0 11.8 11.9 20.0

M&G Inflation

Opportunities 81.6 86.5 9.5 9.7 10.0

Standard

Life

Long Lease Property 43.9 44.5 5.1 5.0 5.0

Total Inflation

Protection 125.5 131.0 14.7 14.7 15.0

LGIM Liquidity Fund 23.2 20.8 2.7 2.3 0.0

Total 855.4 892.6 100.0 100.0 100.0

Source: Northern Trust (Custodian) and have not been independently verified

Figures may not sum to total due to rounding

*This figure includes an allocation being held as cash which will be invested in emerging markets following the transfer to the CIV.

The Fund remains overweight Equities by 7.2% and underweight Secure Income by 8.1%. The Secure Income

allocation should increase by 4.5% as the Partners Group Direct Infrastructure Fund is drawn down, however

the Fund will still be behind the targeted 20% allocation.

Following discussions at the Pension Sub-Committee meeting on 22 June 2016 on proposals to rebalance the

Fund’s holdings back to the target allocations set out in the Statement of Investment Principles, the Sub-

Committee agreed to withdraw £38m from Majedie and invest £16m in Oak Hill Advisers’ Diversified Credit

Strategies Fund and £22m with Insight’s Bonds Plus Fund. Majedie have sold assets and the cash will be

invested with Insight and Oak Hill on their August month-end dealing date. This will reduce the overweight to

UK Equities and bring the Oak Hill and Insight allocation back in line with the strategic benchmark.



7

The asset allocation chart overleaf shows the relative underweight and overweight positions of the Fund against

the benchmark allocations.

Partners Group will gradually draw down funds into the Infrastructure fund as further assets are purchased.

These calls will be funded in the first instance from the cash held in LGIM’s Liquidity Fund.

3.4 Yield Analysis as at 30 June 2016

The following table shows the running yield on the Fund’s investments

Manager Asset Class Yield as at 30 June 2016

Majedie UK Equity 3.35%

LGIM Global Equity 0.27%*

Ruffer Dynamic Asset Allocation 1.28%

Insight Bonds Dynamic Asset Allocation 0.95%

Partners Group MAC Secure Income 4.33%

Oak Hill Advisors Secure Income 6.55%

M&G Inflation Protection 1.95%

Standard Life Inflation Protection 4.50%

Total 2.16%

*Represents the NDIP yield available on the UK Equity Index Fund.

2.4%

4.8%

0.5%

-2.7%

0.7%

0.4%

-1.7%

-1.9%

-4.5%

-0.3%

0.0%

2.3%

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0%

Majedie

LGIM

Ruffer

Insight Bonds

Invesco

Unicapital

Partners Group MAC

Oak Hill Advisors

Partners Group Infrastructure

M&G

Standard Life

Transitional Liquidity Fund

Man

ag

ers

Q2 16



8

4 Summary of Manager Ratings 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 Equities Major deviation from the benchmark return

Significant loss of assets under management

1

Ruffer Absolute Return Departure of either of the co-portfolio managers from the

business

Any significant change in ownership structure

1

Insight Bonds Plus A significant increase or decrease to the assets under

management with no set limits

Significant changes to the team managing the Fund

1

Partners

Group

Multi Asset

Credit

Significant changes to the investment team responsible for

the Fund

*Note the mandate is subject to a 7 year lock-up period

1

Direct

Infrastructure


the Fund.

*Note the mandate is subject to a 10 year lock-up period

1

Oak Hill

Partners

Diversified

Credit Strategy


the Fund.

Significant changes to the liquidity of underlying holdings

within the Fund.

1

M&G Inflation

Opportunities

If the Fund’s portfolio manager Gary Parker was to leave the

business or cease to be actively involved in the Fund, this

would trigger a review of the Fund.

Failure to find suitable investments within the initial two year

funding period.

1

Standard

Life

Long Lease

Property

Richard Marshall leaving the business or ceasing to be

actively involved in the Fund without having gone through an

appropriate hand-over.

A build up within the Fund of holdings with remaining lease

lengths around 10 years.

1

4.1 Majedie

Business

Majedie has come to a provisional agreement with the London CIV in relation to making its UK Equity strategy

available through the London Councils’ platform. With this provisional agreement, Majedie will make additional

capacity available to the London Boroughs on a matching basis. Although final details are yet to be confirmed,

we understand this will likely result in a reduction of fees charged by Majedie to the London Boroughs.

The UK Equity Fund had inflows of c. £240m and outflows of c. £390m over the quarter, with most outflows

being from UK defined benefit schemes with inflows coming from a combination of defined contribution and

high net worth clients.

Total AUM for Majedie as at 30 June 2016 was £11.6bn.

Personnel

There were two new joiners over the quarter with Richard Clarke-Wilson joining the client relationship team,

and Matt Hambly as a compliance assistant.

Deloitte view – We continue to rate Majedie positively for its UK equity capabilities.



9

4.2 LGIM

Business

As at 31 December 2015, Legal & General Investment Management (“Legal & General”) had total assets under

management of c. £520bn.

Personnel

Michael Marks joined as COO, as a permanent replacement for Robert Moore, who was promoted to CEO of

LGIM’s American business. Michael has 28 years’ experience and joined from BlackRock where he was regional

head of the client solutions group. Michael Kovacz joined as Head of Investments Technology from Northern

Trust to provide business direction for the index team on strategic technology projects and develop tactical

solutions.

Deloitte View: We continue to rate Legal & General positively for its passive capabilities.

4.3 Ruffer

Business

Total assets under management were £18.5bn as at 30 June 2016 following a slight net inflow over Q2.

As mentioned in the previous quarterly report, Ruffer has agreed terms with the London CIV to offer its pooled

Absolute Return Fund on the CIV platform. The process to transition the Fund’s holdings from the existing

segregated portfolio to the pooled fund on the CIV began in June and is now complete. Therefore the Fund’s

entire mandate with Ruffer is now held on the London CIV platform.

Personnel

There were no changes to the team or process over the quarter.

Deloitte view – The Ruffer product is distinctive within the universe of diversified growth managers with the

manager willing to take contrarian, long term positions drawing, where necessary, on the expertise of external

funds.

4.4 Insight

Business

Insight continued to see a strong inflow of assets over the quarter. Assets under management were c. £440bn

as at 31 March 2016, with continued demand from investors looking to hedge their inflation and interest rate

risk.

Personnel

There were two new joiners announced over the quarter (although both started post the quarter end):

Tim Doherty joins the New York office and will cover investment grade and non-investment grade issuers,

primarily in the US energy sector, reporting to David Hamilton. Tim joins from Credit Agricole USA where he

has worked as a desk analyst since 2010.

Teo Lasarte joins the London team and will cover investment grade and non-investment grade in the

consumer and industrials sectors, both in developed and emerging markets. Teo joins from BoAML where he

has worked since 2006.

There were three leavers over the quarter:

Tamara Burnell left the credit research team, having joined less than 12 months ago. Tamara is moving to a

more senior role with LGIM.

Eleanor Price also departed to relocate back to Scotland for family reasons (joining Baillie Gifford), and Anna

Stevens decided not to return after maternity leave.

Insight has stated that these departures have been filled by Tim and Teo, as detailed above.

Deloitte view – We continue to rate Insight positively across its Fixed Income capabilities.



10

4.5 Partners Group

Multi Asset Credit

The net asset value of the MAC Fund was £266.3m as at 30 June 2016.

The successor program, the Multi-Asset Credit 2015 Fund, held its final close in April with c. £303m committed.

Partners Group has launched the Multi-Asset Credit 2016 Fund which had its first close in July with £100m

committed. The Fund has a number of investors at various stages of due diligence and the target Fund size will

be £300m. Partners Group expects the MAC 2016 Fund to have its final close in the first quarter of 2017.

Partners Group also confirmed that there will be a Multi-Asset Credit 2017 Fund launched mid-2017.

Direct Infrastructure

As at 30 June 2016, total capital called into the Fund (EUR SICAV) was €18.7m, with €181.3m of commitments

remaining. Post quarter end, Partners Group issued their fifth capital call for a further 8.5% of commited value.

This will take the commitment level to c. 18%. Total commitments to the PG Direct Infrastructure 2015

program stand at $1.1bn as at 30 June 2016.

Personnel

There were no changes to the teams managing the Multi Asset Credit Fund or PG Direct Infrastructure Fund

during the first quarter of 2016.

Deloitte View - We continue to rate Partners Group for its private market and infrastructure capabilities.

4.6 Oak Hill Advisors – Diversified Credit Strategy (DCS)

Business

The total capital which Oak Hill Advisors (“OHA”) manages was approximately $29bn as at 30 June 2016, up

from $26.3bn in the previous quarter. Total assets under management in the DCS Fund was $3.6bn as at 30

June 2016, with $2.5bn in the pooled vehicle.

Ahead of Brexit, Oak Hill did not “position” the Fund one way or the other as it is not a macro hedge fund.

Sterling investors were in a hedged shareclass and, as such, were relatively unaffected by the depreciation in

sterling.

Personnel

As mentioned in the previous quarterly report, Robert Okun’s role as Chief Investment Officer (CIO) has been

more clearly demarcated and separated from his previous responsibilities of CIO and portfolio manager. Robert

had been portfolio manager on the DCS Fund since its inception however he had been giving increasing

responsibility to Adam Kertzner, who has been the effective lead on the strategy for the past 12 – 18 months.

Adam will now officially be the lead portfolio manager on the Fund as Robert focuses on his role as CIO.

There were no other significant personnel changes over the second quarter.

Deloitte view – We recognise that performance has not been satisfactory since inception (Q2 2015) however

having had a review of the product with Oak Hill we are comfortable that much of this negative performance

has been down to mark to market movements associated with the risk appetite of investors in general and are

comfortable with how the strategy is being managed and the level of risk within the strategy.

4.7 M&G – Inflation Opportunities Fund

Business

As mentioned in the previous quarterly report, the Inflation Opportunities Fund V is now fully drawn-down and

no further clients are waiting to come into the fund.

Now c. 18 months into the investment period, the Fund largely consists of Long Lease (c. 30%), Income Strips

(c. 20%) and index-linked gilts (c. 50%). The pipeline of opportunites for alternative investment strategies such

as solar and social housing has reduced as these investments are priced on the index-linked gilts curve which

has dropped by more than 150bps at the front end since the launch of the Fund.

Given this significant fall, M&G is reviewing if it is still realistic for the Inflation Opportunities Fund to meet its

desired target and will be speaking to clients to understand their needs and whether changing the Fund

objective, the investment horizon or the asset mix (or a combination of these) would be appropriate.

The total assets under management in the Fund were c. £482m as at 30 June 2016.

Personnel



11

Assets are sourced for this Fund through M&G’s Real Estate team, which was headed by Stephan Francis, who

recently retired but has been working on a consultancy basis. His replacement is Matthew Stone who has

extensive experience from Kingfisher.

While M&G’s sourcing team comprises a number of senior individuals, following the quarter end it was

confirmed that Kris McPhail was leaving the team to join Aviva as co-manager of its long lease property fund.

The fund management team remains unchanged.

Deloitte view – We met with M&G on 11 August to discuss these recent market developments and possible

outcomes for the Fund. We were satisfied that the interests of the clients is being taken into account and have

requested to be kept informed as the business discusses the most appropate steps forward for the Fund.

4.8 Standard Life – Long Lease Property

Business

The Fund’s assets under management increased slightly to £1.66bn over the second quarter, largely as a

consequence of positive performance, with no significant inflows or outflows over the period. SLI continues to

see interest in the Long Lease Property Fund, with two clients making additional total commitments of £34m

over the second quarter.

Personnel

There were no changes to the team over the quarter.

Deloitte View - The Long Lease Property Fund is only open to institutional investors and was not affected by

the post-referendum liquidity restrictions that affected a number of property funds. We remain positive on long

lease property given the long-term, inflation-linked nature of the contractual cash-flows which arise from this

type of investment and continue to rate SLI’s team.



12

5 Majedie – UK Equity

Majedie was appointed to manage an actively managed segregated UK equity portfolio. The manager’s

remuneration is a combination of a tiered fixed fee, based on the value of assets and a performance related fee

of 20% of the outperformance which is payable when the excess return over the FTSE All Share +2% p.a.

target benchmark over a rolling three year period. The investment with Majedie comprises a combination of the

UK Equity Fund (no more than 30%), the UK Focus Fund and a holding in Majedie’s long/short equity fund,

Tortoise (no more than 10%).

5.1 UK Equity – Investment Performance to 30 June 2016

Source: Northern Trust


The UK Equity Fund returned 3.7% over the quarter against a benchmark return of 4.7%, taking annual

performance to -2.0% compared to its benchmark of 2.2%. The largest contribution to underperformance came

from Royal Bank of Scotland, which suffered from the European referendum vote, and Telecom Italia, which

struggled with the arrival of the unwanted competitor, Etihad. Majedie still believes in its views on financials,

particularly UK banks, and considers these companies to be undervalued following the radical reforms they

have recently undergone, however it now believes their recovery may take longer following the headwinds

created by Brexit.

The UK Focus Fund returned 0.0% over the quarter versus its benchmark of 4.7%, taking annual performance

to -4.2% against a benchmark return of 2.2%. The UK Focus fund suffered from its holdings in UK-centric

companies in the aftermath of Brexit such as the concrete manufacturing company Marshalls and Royal Bank of

Scotland which have a high exposure to the UK economy.

The Tortoise Fund’s return of 9.5% over the second quarter took its return to 10.9% over the year, with the

fund benefiting from its long positions in oil and mining, and its short positions in consumer goods and

financials.

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Q2 16Q1 16Q4 15Q3 15Q2 15Q1 15Q4 14Q3 14Q2 14Q1 14Q4 13Q3 13

Majedie UK Equity


Qu

arte

rly

Excess R

etu

rn

Excess R

etu

rn

Last Quarter

(%)

One Year

(%)

Two Years

(% p.a.)(1)

Three Years

(% p.a.)

Five Years

(% p.a.)

Majedie – Gross of fees 3.1 -2.5 2.8 8.4 10.5

Net of fees(1) 3.0 -2.9 2.4 8.1 10.1

Benchmark 4.7 2.2 2.4 5.8 6.3

Target 5.2 4.2 4.4 7.8 8.3

Net performance relative to

Benchmark -1.7 -5.0 0.1 2.2 3.9



13

6 Legal and General – Global

Equity

Legal and General Investment Manager (“LGIM”) was appointed to manage a global equity portfolio with the

objective of replicating the performance of the FTSE All World Index benchmark. The manager is remunerated

on a tiered fixed fee based on the value of assets.

6.1 Global Equity – Investment Performance to 30 June 2016

Source: Legal and General.

(1) The Committee have decided to hold the Emerging Market allocation in cash until the launch of the London CIV to save on transaction costs.

(2) Benchmark positions are subject to changes to the FTSE All World Index once invested on the London CIV. The benchmark is assumed to

remain constant in the meantime.

Source: Northern Trust. Relative performance may not tie due to rounding.


(2) The Emerging Market allocation is currently held in the Sterling Liquidity Fund

All three LGIM funds have performed in line with their respective benchmarks over the quarter.

Work is ongoing looking at the options for how this mandate should be moved onto the London CIV platform in

the most cost effective way. Analysis is being carried out by the CIV and LGIM to consider the restructuring and

rebalancing costs, particularly relating to the Fund’s emerging markets exposure.

Valuation 31 Mar

2016 (£m)

Valuation 30

Jun 2016 (£m)

Actual

Allocation (%)

Benchmark

Allocation (%)(2)

UK Equity Index 15.3 16.0 6.5 7.2

World (ex UK) Dev

Equity Index 192.6 209.7 86.0 84.3

Sterling Liquidity Fund(1) 18.2 18.2 7.5 8.5

Total 226.1 243.9 100.0 100.0

Quarter Performance (%)

UK Equity

Fund

Global Equity Fund Sterling Liquidity

Fund(2)

LGIM – Gross of fees 4.7 8.9 0.1

Net of fees(1) 4.7 8.9 0.1

Benchmark 4.7 8.9 0.1

Net Performance relative to Benchmark 0.0 0.0 0.0



14

7 Ruffer – Absolute Return

Ruffer was appointed to manage an absolute return mandate with the aim of outperforming the 3 month

Sterling LIBOR benchmark by 4% p.a. The manager has a fixed fee based on the value of assets.

7.1 Dynamic Asset Allocation – Investment Performance to 30 June 2016



Ruffer outperformed its target over the second quarter by 2.4% net of fees. This takes the 12 month and three

year relative performance to -4.3% and -0.3% p.a. respectively.

Over the second quarter, the mandate fared well in a turbulent market given the uncertainty surrounding

Brexit. The positive performance can be attributed to the Fund’s significant allocation in index linked bonds

which performed strongly following the UK’s vote to leave the EU which led to a further fall in interest rate

expectations. The Fund’s holdings in gold also contributed following the post-Brexit flight to safe assets. This

was partially offset by the disappointing performance of the Fund’s Japanese equities, as Japanese exporters

suffered from the strengthening Yen. Ruffer maintains its view that Japanese equities are undervalued and

believes there will be a substantial fiscal stimulus in Japan following prime minister Shinzo Abe’s re-election,

which will deliver increased prospects for the Japanese economy.

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Q2 16Q1 16Q4 15Q3 15Q2 15Q1 15Q4 14Q3 14Q2 14Q1 14Q4 13Q3 13

Ruffer Absolute Return


Qu

arte

rly

Excess R

etu

rn

Excess R

etu

rn

Last

Quarter

(%)

One Year

(%)

Two Years

(% p.a.)(1)

Three

Years

(% p.a.)

Five Years

(% p.a.)

Ruffer - Gross of fees 3.8 1.0 6.9 5.1 6.1

Net of fees(1) 3.6 0.2 6.0 4.3 5.3

Benchmark / Target 1.1 4.6 4.6 4.6 4.7

Net performance relative to

Benchmark 2.4 -4.3 1.4 -0.3 0.6



15

8 Insight – Bonds Plus

Insight was appointed to manage an active bond portfolio with an aim of outperforming the 3 Month Sterling

LIBOR by 2% over a rolling three year period. The fees are based on the value of assets invested in the fund.

8.1 Absolute Return – Investment Performance to 30 June 2016

Source: Northern Trust. Relative performance may not tie due to rounding. Longer term performance sourced from Insight.

Note: Historic performance out with ‘Last Quarter’ is shown for illustrative purposes only. These longer term performance figures were sourced

from Insight and are gross of fees. The Fund has not been invested for these longer periods shown.


Insight outperformed its target over the quarter to 30 June 2016 by 0.1%, net of fees. The positive

performance was delivered at the start of the quarter as the Fund delivered a negative return in May and June.

The Fund benefited from its long Australian government bonds vs. UK gilts position in April, helped by an

Australian rate cut in the quarter. However, the short UK position dragged as the uncertainty relating to the EU

referendum initiated a flight to safety, encouraging investors to buy gilts. Short duration positions on Italian

and German sovereign debt and asset-backed securities and the Fund’s holdings in emerging market debt also

contributed to the quarterly performance.

These positive contributions were partially offset by the Fund’s overweight position in financials which suffered

in the aftermath of the Brexit vote. Insight maintains its long-term view on financials and believes they are

undervalued following the strengthening of financials companies’ balance sheets over the past 18 months, and

therefore considers them to remain good long-term investments.

Last Quarter

(%)

One Year

(%)

Three Years

(% p.a.)

Five Years

(% p.a.)

Insight - Gross of fees 0.9 1.1 2.1 2.7

Net of fees(1) 0.8 0.6 1.6 2.2

Benchmark / Target 0.6 2.6 2.6 2.6

Net performance relative to Benchmark 0.1 -2.0 -1.0 -0.4



16

9 Partners Group – Multi Asset

Credit

Partners Group was appointed to manage a multi asset credit mandate with the aim of outperforming the 3

month Sterling LIBOR benchmark by 4% p.a. The manager has an annual management fee and performance

fee.

9.1 Multi Asset Credit - Investment Performance to 30 June 2016


The Fund underperformed its benchmark by 1.3% over the quarter, net of fees, returning -0.2% in absolute

terms. The decline in value over the quarter was a reflection of the uncertainty in the market which impacted

the pricing of the holdings rather than any permanent loss of capital.

Over the longer 12 months period to 30 June 2016, the Fund returned 5.1%, net of fees, outperforming the

benchmark by 0.5%.

9.2 Asset Allocation

The charts below show that the majority of the Fund is invested in senior secured debt.

Note: Based on information provided by Partners Group.

35%

23%

6%

7%

2%2%

3%

9%

13%

Regional allocation as at 30 June 2016

US

UK

Netherland

sBelgium

Switzerlan

dDenmark

77%

12%

9%2%

Allocation by debt typeas at 30 June 2016

First Lien

Second Lien

Mezzanine

Equity

Last Quarter

(%)

One Year

(%)

Partners Group MAC - Gross of fees 0.0 6.0

Net of fees(1) -0.2 5.1

Benchmark / Target 1.1 4.6

Net performance relative to Benchmark -1.3 0.5



17

The table below shows details of the Fund’s five largest holdings based on net asset value as at 30 June 2016.

Source: Partners Group. Current IRR is net of cost and fees of the investment partner but gross of Partners Group fees. For investments with a

holding period less than 12 months, the IRR is not annualised.

9.3 Fund Activity

There were no new investments made during the second quarter. The Fund remains stable with very little

activity as Partners Group has invested all of the Fund’s commitments.

The Fund is in its 2 year reinvestment period which means Partners Group may replace assets if it finds

more attractive opportunities or if an existing asset is refinanced or repaid early. Partners Group may also

selectively top-up investments to keep the Fund close to 100% invested.

Partners Group expects the impact of the UK’s decision to leave the European Union to have a limited impact

on the portfolio and believes that uncertainty caused could create investment opportunities in credit

markets.

Investment Description Type of

Debt Tranche

Maturity

Date

Current

IRR

(%)

NAV

(£m)

% of

NAV

Nob Hill Square Retail shopping centre

in Hong Kong

Real

Estate First lien

2 Apr

2020 6.2 16.8 5.8%

Advanced

Computer

Software

UK software developer Corporate First lien 20 Mar

2022 8.6 13.6 4.7%

AS Adventure

Large European

specialist multi-brand

outdoor retail group

Corporate First lien 28 Apr

2022 5.5 13.3 4.6%

Alpha German

Property Income

Trust

Germany property Real

estate Mezzanine

31 Mar

2020 13.2 12.7 4.4%

Cote Bistro

UK restaurant chain

offering value for

money French cuisine

Corporate First Lien 14 Jul

2022 4.7 12.5 4.3%



18

10 Oak Hill Advisors – Diversified

Credit Strategies Fund Oak Hill Advisors was appointed to manage a multi asset credit mandate with the aim of outperforming the 3


fee.

10.1 Diversified Credit Strategies - Investment Performance to 30 June 2016


Over the quarter the Diversified Credit Strategies Fund delivered 4.5% net of fees, outperforming its target by

3.4%. By asset class, the strong performance can primarily be attributed to the Fund’s holdings in high yield

bonds and structured products. At the industry level, the largest contributor was structured finance as

collateralized loan obligation (CLO) debt returned strongly from the mark-to-market sell-off in the quarter.

Investments in oil & gas, services, telecommunications and high-tech securities also contributed positively.

Over the longer 12 months period to 30 June 2016, the Fund returned -1.4%, net of fees, underperforming its

target by 6.0% for the year.

Oak Hill Advisors continues to maintain its quality bias, with over 41% of the strategy in secured credit and

approximately one third rated BB- and above. The Fund continues to hold a large cash allocation of 13% as it

looks to take advantage of new opportunities and continues to have an increased focus on stressed / distressed

issuers.

Last Quarter

(%)

One Year

(%)

OHA – Gross of fees 4.7 -0.7

Net of fees(1) 4.5 -1.4

Target 1.1 4.6

Net Performance relative to Benchmark 3.4 -6.0



19

11 Partners Group – Direct

Infrastructure

Partners Group was appointed to manage a global infrastructure mandate with the aim of outperforming the 3


fee.

11.1 Direct Infrastructure - Investment Performance to 30 June 2016

As at 30 June 2016 the Partners Group Direct Infrastructure 2015 Fund was early in its investment phase. Over

the quarter a third investment was added – Silicon Ranch, a US solar platform. Following the quarter end,

Partners Group signed an agreement to purchase a fourth asset – Axia Net Medie, a Canadian and French based

internet and data network provider. Further details of both new assets are set out below.

Partners Group continues to see attractive assets throughout Europe and is at the early stages of working

through several additional greenfield and brownfield opportunities. Partners Group believes it is at an

advantage being a global fund due to the increased competition for infrastructure assets in Europe, and

markets like Australia being impacted by Brexit to a lesser extent than the immediate neighbouring European

markets.

Silicon Ranch

In April 2016, Partners Group made a new investment in Silicon Ranch, a US solar platform that develops, owns

and operates solar power production facilities. The organisation has a long-term focused strategy which

includes building projects on owned land where projects are secured with 20 or 30 years Power Purchase

Agreements (“PPA”).

Axia NetMedie (“Axia”)

Axia, a publicly listed entity, designs, installs and operates “open access” fibre-based internet and data

networks across North America and France, specialising in bringing fast broadband to rural and semi-rural

areas. Partners Group’s financing is expected to help Axia expand its existing networks in Canada and France,

as well as to pursue further network development opportunities into new markets worldwide.



20

11.2 Investments Held

The table below shows a list of the investments held by the Partners Group Direct Infrastructure Fund as at 30

June 2016.

Investment Description Type Sector Country Commitment

Date

Fermaca Gas infrastructure operator

based in Mexico. Lead Energy Mexico July 2015

Japan Solar

General Partner Solar platform based in Japan

Joint-

lead Solar Power Japan July 2015

Silicon Ranch Solar platform based in US Lead Solar Power USA April 2016

Axia NetMedie

Internet and data network

provider based in Canada and

France

Lead Communication Canada &

France July 2016



21

12 M&G – Inflation Opportunities

M&G was appointed to manage an inflation opportunities mandate with the aim of outperforming the RPI

benchmark by 2.5% p.a. The manager has an annual management fee which is calculated based on the

underlying assets

12.1 M&G Inflation Opportunities - Investment Performance to 30 June 2016


Over the second quarter of 2016 the Fund returned 6.0% net of fees, outperforming the target by 4.6%. Over

the longer 12 month period to 30 June 2016, the Fund delivered 12.2% net of fees, outperforming its target by

8.1%.

The strong performance can be primarily attributed to the Fund’s allocation to index-linked gilts where prices

rose as interest expectations fell following the expectation of rate cuts and increased quantitative easing from

central banks on the back of the economic uncertainty created by the UK’s vote to leave the EU.

At the end of June 2016, the Fund comprised c. 50% index-linked gilts, c. 30% long lease property and c. 20%

income strips (when fully drawn down) with a small allocation of cash. The allocations to long lease property

and income strips (once fully drawn down) are now in line with the target allocation.

The Fund is currently approximately 18 months into its two year investment period to source and invest in

suitable long term assets which provide sufficient risk, return and diversification characteristics. M&G noted a

reduction in activity in the build-up and aftermath of the European Union referendum.

M&G is reviewing whether its desired target is achievable following the recent drop of more than 150bps at the

front end of the index-linked gilts curve, on which many of its target assets are priced. The manager will be

speaking to clients to understand their needs and whether changing the Fund objective, the investment horizon

or the asset allocation mix would be appropriate.

Last Quarter

(%)

One Year

(%)

M&G Inflation Opportunities – Gross of fees 6.0 12.5

Net of fees(1) 6.0 12.2

Target 1.4 4.1

Net Performance relative to Benchmark 4.6 8.1



22

13 Standard Life Investments –

Long Lease Property

Standard Life Investments was appointed to manage a long lease property mandate with the aim of

outperforming the FT British Government All Stocks Index benchmark by 2.0% p.a. The manager has an annual

management fee.

13.1 Long Lease Property - Investment Performance to 30 June 2016


The SLI Long Lease Property Fund returned 1.3% over the second quarter of 2016, underperforming the

benchmark of the FTSE Gilt All Stocks Index + 2% by 5.5% net of fees. The Fund continues to lag the wider

property market, which has returned 9.3% over the year to 30 June 2016, but returns remain attractive from

an absolute perspective and are in line with those achieved by other property funds with a long lease focus.

13.2 Portfolio Holdings

The sector allocation in the Long Lease Property Fund as at 30 June 2016 is shown in the graph below.

The Fund remains underweight the office sector (21.0% compared to 35.2%) and remains underweight the

industrial sector (13.8% compared to 20.6%) at the end of the second quarter of 2016. The Fund is also

slightly underweight the retail sector (34.2% compared to 37.3%) which is dominated by supermarkets and

contains no shopping centres and only a small allocation to retail warehouses.

The Fund continues to be significantly overweight the “Other” sector (31.0% compared to 6.9%) as a result of

its holdings in a range of car parks, student accommodation, hotels, medical centres and law courts, as well as

its indirect holding in the Standard Life Investments Commercial Ground Rent Fund.

Last Quarter

(%)

One Year

(%)

SLI Long Lease Property – Gross of fees 1.3 5.9

Net of fees(1) 1.2 5.4

Target 6.6 15.6

Net Performance relative to Benchmark -5.5 -10.2



23

The table below shows details of the top ten tenants in the Fund measured by percentage of net rental income:

Tenant Total Rent £m p.a. % Net Income

Tesco 7.81 10.3

Whitbread 5.06 6.7

Sainsbury’s 4.89 6.5

ASDA 4.42 5.9

Salford University 3.69 4.9

Marston’s 3.64 4.8

Poundland 3.60 4.8

Save The Children 3.58 4.7

Glasgow City Council 3.10 4.1

Travis Perkins Group 3.00 4.0

Total 42.78 56.6

The top 10 tenants contribute 56.6% of the total net income into the Fund. Supermarkets continue to dominate

with Tesco, Sainsbury’s and Asda contributing 22.6% to the Fund’s total net rental income.

The Fund’s average unexpired lease term reduced over the quarter from 26.3 years to 25.9 years.

The proportion of the Fund invested in assets with fixed, part-fixed, CPI or RPI-linked rental increases increased

slightly over the quarter from 90.6% to 90.9%.

13.3 Sales and Purchases

During the quarter, the Fund made a forward purchase commitment for a distribution warehouse in Dartford let

to TNT for £34.1m, representing an initial yield of 4.6%p.a. Once up and built, TNT will be on a 20 year lease

with 5 yearly RPI-linked rent reviews, subject to a cap of 4% and a floor of 1%.

The Fund also made a forward commitment to purchase an office development in Birmingham for £54.4m,

representing an initial yield of 4.6% p.a. The property, once completed, will be let to Interserve (FTSE 250

Company) for 30 years with annual RPI-linked rent reviews caped at 4% with a floor of 2%.

The Fund disposed of its Morrison’s Supermarket asset in Harrow during the second quarter of 2016 citing

concerns over its recent trading record. The asset was sold for £28.4m, which was slightly above valuation. This

reduces the Fund’s exposure to supermarkets, with SLI noting a slight weakening in supermarket valuations in

recent months.



24

Appendix 1 – Fund and Manager

Benchmarks

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

individual manager.

Total Fund

Inception: 31 December 1999.

Manager Asset Class Allocation Benchmark Inception Date

Majedie UK Equity 22.5% FTSE All-Share Index +2% p.a.

over three year rolling periods

31/08/05

LGIM Global Equity 22.5% FTSE All World Index 30/11/15

Ruffer Dynamic Asset

Allocation

10.0% 3 Month Sterling LIBOR +4% p.a. 31/07/08

Insight Bonds Plus 10.0% 3 Month Sterling LIBOR +2% p.a. 30/09/15

Invesco Private Equity 0.0% n/a 30/09/09

Unicapital Private Equity 0.0% n/a 30/09/09

Partners

Group

Multi Asset Credit 7.5% 3 Month Sterling LIBOR +4% p.a. 28/01/15

Oak Hill

Advisors

Multi Asset Credit 7.5% 3 Month Sterling LIBOR +4% p.a. 01/05/15

Partners

Group

Infrastructure Fund 5.0% 3 Month Sterling LIBOR +8% p.a. 31/08/2015

M&G Inflation Opportunities 10.0% RPI +2.5% 01/05/15

Standard

Life

Investments

Long Lease Property 5.0% FT British Government All Stocks

Index +2.0%

09/04/15

Total 100.0%

Note, for the benchmark performance calculation, we assume a 10% allocation to Partners Group MAC and Oak Hill Advisors MAC, and 0%

allocation to Partners Group Infrastructure. This will be re-weighted as the Infrastructure Fund is drawn down.



25

Appendix 2 – Manager Ratings

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.



26

Appendix 3 – Risk warnings &

Disclosures

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.


27

Other than as stated below, this document is confidential and prepared solely for your information and that of other beneficiaries of

our advice listed in our engagement letter. Therefore you should not 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. If this document contains details of an arrangement that could result in a tax or National Insurance saving, no such

conditions of confidentiality apply to the details of that arrangement (for example, for the purpose of discussion with tax

authorities). In any event, 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.

© 2016 Deloitte Total Reward and Benefits Limited. All rights reserved.

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

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