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ITEM PF5
PENSION
FUND COMMITTEE – 7 OCTOBER 2002
REVISED
STATEMENT OF INVESTMENT PRINCIPLES
Report by
Director for Business Support & County Treasurer
Background
- In August 2002
new Local Government Pension Scheme regulations came into force requiring
administering authorities to prepare a revised Statement of Investment
Principles (SIP) setting out the extent to which they comply with the
ten investment principles contained in the CIPFA document "Principles
for Investment Decision Making in the Local Government Pension Scheme
in the UK" published in April 2002.
- The revised statements
also require administering authorities to give their reasons in those
cases where they do not comply with the principles.
- The CIPFA document
was circulated to members at the beginning of May 2002. This was followed
by a report to the Pension Fund Committee on 24 May 2002, which set
out the Oxfordshire Pension Fund’s compliance with the Principles. This
report included a compliance checklist and Oxfordshire graded its compliance
against each checkpoint, under three different headings i.e. fully complied
with, partially complied with and not complied with at all.
Main Conclusions
of the May 2002 Pension Fund Committee Report
- The report concluded
that overall the Oxfordshire Pension Fund appeared to be complying with
the ten principles, though there were a few exceptions. The asset liability
study and the ongoing management structure review addressed many of
the issues set out in the principles.
- However, there
were several issues that we felt had not been fully addressed for one
reason or another and two recommendations were subsequently passed at
the meeting (see paragraph 9 below).
- Tony Wheeler reported
that he was exploring various options for member training and since
the report members have attended a series of seminars and training courses.
However, it may be desirable to formalise the training process so as
to ensure that members achieve a minimum level of expertise to enable
them to take decisions or evaluate the advice they are given.
- One of the principles
covers the subject of Activism. This is not solely concerned
with a pension fund’s voting arrangements but also extends to its managers
being proactive in their dealings with company managements. Myners recommends
"trustees should ensure that managers have an explicit strategy, elucidating
the circumstances in which they intervene in a company, the approach
they will use in doing so, and how they measure the effectiveness of
this strategy." This is a complex issue and we reported in May that
we had not to date pursued this but would keep it under review. This
position has not changed in the meantime and we feel it would be prudent
to defer any decision on this until we receive further guidelines. An
article that appeared in the weekend Financial Times on 15/16 June 2002
is shown in Annex 1. This reports on some of the discussions that have
been taking place behind the scenes on this subject.
- In the May Committee
report we also briefly reported on transaction costs and explained that
Schroders had stopped the practice of using soft commissions and that
Deutsche was also in the process of phasing these out. However, the
CIPFA principles also discussed the need to understand all
transaction related costs and the desirability of monitoring these.
We do not do this at the moment but intend to do so once the investment
management review has been completed.
- The two recommendations
agreed by members at the May meeting were "to ask officers to draw up
an annual business plan, which should contain financial estimates for
the investment and administration of the Pension Fund and appropriate
provision for member training" and "to ask officers to carry out a formal
tender process for the Fund’s actuarial services in the summer of 2003."
Revised
Statement of Investment Principles
- Oxfordshire’s
revised SIP is shown at Annex 2. It has been drawn up in accordance
with the new Local Government Pension Scheme regulations, referred to
in paragraphs 1 and 2 above, and has also been updated in the light
of the recent asset liability exercise.
RECOMMENDATION
- The Committee
is RECOMMENDED to adopt the revised Statement of Investment Principles
(SIP) set out in Annex 2 of this report.
CHRIS
GRAY
Director for Business Support & County Treasurer
Background Papers: CIPFA Pensions Panel "Principles for Investment
Decision Making in the Local Government Pension Scheme in the UK." The
Financial Times.
Contact
Officer: Tony Wheeler, Pension Fund Investments Manager, Tel (01865)
815287
September
2002
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