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Posted by: John Brace | 19th November 2013

UPDATED: Wirral Council & Merseyside Pension Fund in “A bad day at Black Rock”

Wirral Council & Merseyside Pension Fund in “A bad day at Black Rock”

             

This is a rather complicated story in which I’m just going to state the facts and try not jump to conclusions or assumptions, but first a bit of background. Wirral Council is the administering authority for Merseyside Pension Fund which has assets of billions of pounds. The members of the Pension Committee (mainly consisting of Wirral Council councillors) are its trustees.

At tonight’s meeting the members of the Pension Committee will consider at agenda item 9 (gifts and hospitality returns) a report, the M21 Gifts and Hospitality form and the register of CPD (which means continuing professional development) and training.

Here are the entries about Blackrock, first from the M21 form.

Officer’s nameNature of hospitality/giftValue of offerDonor organisationDate of offerOrganisation seeking work: Yes/NoOffer accepted Yes/No
INVESTMENT MANAGER DINNER – FOLLOWING BUSINESS MEETING £50.00 BLACKROCK 22 Nov 12 Organisation seeking work? No Offer accepted? Yes
INVESTMENT MANAGER DINNER FOLLOWING BUSINESS MEETING £80 BLACKROCK 22 MAY 13 Organisation seeking work? YES –
Assessment is made by Consultant.
Offer accepted? YES
INVESTMENT MANAGER DINNER – FOLLOWING BUSINESS MEETING £50 BLACK ROCK 28 AUG 13 Organisation seeking work? NO Offer accepted? YES

Now this is the only Blackrock entry from the CPD/Training Form.

Officer’s nameNature of non hospitalityDonor organisationValue of offerDate of offerOrganisation seeking work: Yes/No
INVESTMENT MANAGER DINNER – FOLLOWING BUSINESS MEETING BLACK ROCK 28 AUG 13 Organisation seeking work? NO

So what you may ask?

Well at the Pension Committee meeting of the 16th September the Pension Committee received a report on Medium Term Asset Allocation Implementation of Framework along with two exempt appendices that I’ll publish here, exempt appendix 1 entitled “Framework for Implementation of Active Management of Medium Term Asset Allocation Revised as at 30th August 2013” and exempt appendix 2 entitled Overlay Manager Review (the Fund) 10th July 2013.

The latter exempt appendix 2, a report of Aon Hewitt Limited goes into detail of the two proposals from Blackrock and Northern Trust to be an overlay manager for the Merseyside Pension Fund. Blackrock’s proposed flat fee is £150,000 a year, Northern Rock’s is somewhere between £50,000 and £300,000 a year. The report states that “Blackrock’s fee is more competitive” and concludes by stating “However, having considered each key criterion, we believe BlackRock would provide a stronger overlay partner for the Fund”.

Exempt appendix 1 states in “next steps” at 9.1 “Officers are in the process of conducting contractual due diligence with Black Rock. Once complete BlackRock will set up the QIF and MPF will fund in cash approximately £50m (The cash will be largely be utilised as collateral for derivative instruments).”

The report makes clear at 2.2 that “Since the Pensions Committee [of the 24th June] and following advice from Aon Hewitt, BlackRock have been appointed as the Overlay Manager.”

So why did an investment manager of the Merseyside Pension Fund accept dinner from Blackrock on the 22nd May 2013, an organisation seeking work to the value of £150,000 a year from Merseyside Pension Fund, that ultimately won the contract? Will the “assessment made by consultant” into this practice be published? Will there be any questions into this asked of officers by members of the Pension Committee tonight? We’ll just have to wait and see.

UPDATED 20/11/13: The item on gifts and hospitality returns attracted no questions from members of the Pension Committee during the meeting itself, no calls for the assessment to be published and no explanations from officers. One other interesting thing about the M21 form and CPD form is officer’s names aren’t given under the heading officer’s name, just job descriptions.

UPDATED 25/11/13: In response to this FOI request, Wirral Council responded as follows:

“1. The ‘Assessment by consultant’ referred to in the M21 form does indeed refer to an exercise commissioned from the Fund’s strategic consultant, Aon Hewitt. The purpose of the exercise was to make recommendations to Fund officers on the appointment of a medium term asset allocation overlay manager. The original exercise had been to carry out due diligence on the Fund’s existing custodian bank, Northern Trust, to fulfill the role of overlay manager. However, concerns of a regulatory nature were raised by Aon Hewitt and it was decided to investigate alternative solutions alongside this by accessing the Fund’s Transition Manager Framework. BlackRock were a participant in the Framework, having previously gone through a competitive tendering process, and out of all of the Framework participants approached were the only one able and willing to carry out the role of overlay manager. Aon Hewitt were then asked to compare the suitability of BlackRock and Northern Trust to deliver the overlay manager service and make a recommendation to officers.

2. BlackRock were, and continue to be, an appointed investment manager for the Fund; currently managing over £300 million of Fund assets.

3. The Head of Merseyside Pension Fund made the final decision to appoint BlackRock as overlay manager for the Fund, on advice from Aon Hewitt and acting under delegated authority. This decision was reported to the Pension Committee at their meeting in September 2013.”

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