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Adviser  >  Investment for Advisers  >  Advisory Committee  >  Meeting Summaries  >  Meeting summary for 2 September 2004

Meeting summary for 2 September 2004

Attended - Mike Yardley, Andrew Barrie, Brian Duffin, Ewan Smith

Apologies - Andy Carter

The first meeting of the Royal London Investment Advisory Committee (IAC) was on Thursday, 2nd September 2004.

During the course of the meeting, the Terms of Reference were reviewed and approved. It was noted the committee were initially focused on the Scottish Life Pensions Managed funds and their associated building blocks, however the Terms of Reference cover all of the funds within the Royal London Group.

Andrew Barrie presented a paper setting out the proposed benchmarks and associated risk budgets for each of the Managed funds. The committee discussed the appropriate fund objectives and corresponding risk measures. It was agreed the risk/reward analysis should take account of the impact of inflation on the purchasing power of the accumulated fund at the specified time horizon.

It was proposed that Scottish Life would provide three in-house Managed funds - Defensive Managed fund (Short Cautious), Managed fund (Medium Balanced) and Adventurous Managed fund (Long Adventurous) and these would follow the corresponding benchmarks. These funds will be actively managed around the benchmarks and the appropriate risk budgets were set to control the level of active management risk that can be taken. This has been the subject of detailed discussions between Royal London Asset Management (RLAM) and Barrie & Hibbert.

The risk budgets for each of the three funds were agreed as follows:

• Defensive Managed fund - 2.5% pa (Tracking Error)
• Managed fund - 3.75%pa (Tracking Error)
• Adventurous Managed fund - 5% pa (Tracking Error)

The distribution of the equity weighting was discussed. The analysis suggests that, if the primary purpose is to provide diversification benefit away from UK Equities, then the optimal overseas weighting lies between 40% and 50% with the balance in UK Equities. It was agreed, subject to a sensitivity analysis confirming the stability of the results, that the benchmark weighting should be 55% UK Equities and 45% Overseas Equities.

RLAM presented proposals regarding the implementation of the new fund objectives and risk budgets. The following points were agreed:

1. The target distributions requires significant switching of investments from equities into bonds and property, particularly within the . Whilst the purchases of bonds can be achieved almost immediately this will not be possible for property purchase where it may take several months to acquire the required quality of investments.
2. It was agreed it would be highly desirable to complete this transitionary period by 1st January 2005.
3. In the medium term it is intended that the existing Global Managed fund will become the vehicle which provides the equity exposure for the three managed funds and any customised portfolios created by advisers of individual customers. The distribution of the Global Managed fund will be managed against the agreed benchmark (55% UK Equities, 45% Overseas Equities).

It was agreed the IAC should meet on at least a quarterly basis.