Covid delays Kent fund remedies after Woodford debacle

In an audit report published alongside the Kent scheme’s annual report, Grant Thornton stated that while some steps have been taken to improve governance, “a number of key recommendations” are still in progress “and a follow up internal audit report has not yet been performed”.

The £6.5bn KCCSF, which is part of the Local Government Pension Scheme, still had £19m invested in the Woodford Equity Income Fund — now administered by Link Fund Solutions — at the end of September.

The review made several recommendations to strengthen the governance and decision-making in the fund and good progress is being made in their implementation

Charlie Simkins, Kent County Council

Woodford Investment Management’s flagship fund had been struggling with outflows, which were running at a net £9m per working day in May 2019.

But in June, Kent County Council asked to withdraw all of the £250m it had invested with Woodford through its pension fund. Meanwhile, Kier Group, one of the strategy’s substantial holdings, announced a profit warning that prompted its shares to plummet by 40 per cent.

When the council’s request arrived, the fund did not have enough liquidity to meet the redemptions and was suspended.

In October 2019, it was announced that the suspended fund, initially touted to reopen in December, would be wound down and the former star manager was fired from the strategy.

Auditor flags delay as high risk

Following the suspension of the Woodford fund, Kent’s governance and audit committee commissioned a review from the council’s internal audit team.

Some of the recommendations agreed have since been implemented, such as the creation of a log of all investment decisions, a review of the structure and capacity of the finance function, and the improvement of record-keeping in the minutes of committee meetings.

But Grant Thornton’s audit report flagged concerns that other recommendations are yet to be carried out. According to the council, progress on these remaining items has been stalled by the Covid-19 pandemic.

In its report, Grant Thornton noted that this subject will be revisited as part of the next financial year’s audit.

The council explained in the audit report that “a number have been implemented” and pointed out that Barnett Waddingham has been appointed to conduct a review of the governance of the fund and of the finance resources allocated to the management and administration.

In its 2020 annual report and accounts, which was discussed in the latest committee meeting on November 13, chair Charlie Simkins explained that following the suspension of the Woodford Fund, the local authority’s governance and audit committee commissioned a review, which was undertaken by KCC’s internal audit team.

“The review made several recommendations to strengthen the governance and decision-making in the fund and good progress is being made in their implementation,” he said.

Governance report expected in May

The consultancy will be running the two governance projects simultaneously, and is expecting to have a final report ready around May 2021, said Annemarie Allen, head of benefits and governance at Barnett Waddingham, during the committee meeting.

Councillor Paul Bartlett, member of the Superannuation Fund Committee, noted this timeline in a November council meeting, urging that the governance review report “should be completed as quickly as possible”.

Zena Cooke, corporate director of finance at the council, explained that the governance review will be divided into different topics, which means actions can “be implemented as appropriate rather than waiting for the final report”.

Kent County Council declined to comment on this matter as the initial internal audit report has not been published, adding that its internal audit committee “will be reporting an update in January, so it is likely that the progress may be reported publicly then”.