Return to AgendaITEM PF3
PENSION FUND committee
MINUTES of the meeting held on 14 September 2007 commencing at 10.15 am and finishing at 1.18 pm.
Present:
Voting Members: Councillor David Harvey - in the chair
Councillor Tony Crabbe Councillor Neville Harris Councillor Ray Jelf Councillor Jim Moley Councillor Dermot Roaf (in place of Councillor Bill Bradshaw) Councillor Bill Service
By Invitation: Mr A Bushell (Independent Financial Adviser) Mr P Harris (UBS Global Asset Management) Mr M Stemp (UBS Global Asset Management) Mr G Blunden (Alliance Bernstein) Mr P Rudden (Alliance Bernstein) Ms K Thrumble (WM Company)
Officers:
Whole of meeting: Mr S Collins (Shared Services), Ms J Hydari, Mr T Wheeler and Ms M Holyman (Corporate Core)
The Committee considered the matters, reports and recommendations contained or referred to in the agenda for the meeting and decided as set out below. Except insofar as otherwise specified, the reasons for the decisions are contained in the agenda and reports, copies of which are attached to the signed Minutes.
39/07 APOLOGIES FOR ABSENCE AND TEMPORARY APPOINTMENTS
Apologies for absence and temporary appointments were received as follows:
40/07 DECLARATIONS OF INTEREST
Councillors Harvey, Moley and Service declared personal interests as members of the Pension Fund Scheme under the provisions of Section 18 of the Local Government and Housing Act 1989.
41/07 MINUTES
The Minutes of the meeting of the Committee held on 25 May 2007 were approved and signed.
42/07 OVERVIEW OF PAST AND CURRENT INVESTMENT POSITION (Agenda Item 5)
The Committee was advised that Tables 1 to 7 had been compiled from the custodian's records (the Pension Fund's prime record keeper). In his records, he accrued for dividends and recoverable overseas tax within his valuation figures and might also have used different exchange rates and pricing sources compared with the fund managers. In addition, the Committee was advised that the custodian had treated dividend scrip issues as purchases which the fund managers might not have done. This might mean that there were minor differences between the tabled figures and those supplied by the managers.
The Independent Financial Adviser reviewed the investment activity during the past quarter and presented an overview of the Fund’s position as at 30 June 2007. On Table 1, he reported that the pension fund portfolio had risen by 4% to over £1 billion: UK equities had risen by 2.3%, overseas equities by 8%, bonds by 1.3%, private equity by 7.4% and hedge funds by 8.5% and the TAA had remained virtually unchanged.
On Table 2 (UBS), he pointed out that UK equities were above the benchmark, overseas equities were in line with the benchmark, bonds and property were below the benchmark and cash held was 2.8%.
On Table 3 (Alliance Bernstein), he highlighted that UK equities were below the benchmark and overseas equities overall were in line with the benchmark but, within this class, North America and European equities had performed above the benchmark.
On Table 4, he reported that Legal & General was virtually fully invested. He highlighted that UK gilts were above the benchmark and corporate bonds and index linked bonds were below the benchmark. He said that Baillie Gifford was virtually fully invested.
On Table 5, he reported that there had been net sales of £1m of UK equities and net purchases of £6.5m of overseas equities and of £7.5m of bonds. He said that there had been purchases of £4m of corporate bonds, of £3m of index-linked bonds, of £1.3m of private equity and of £1m of hedge funds. The value of UK equities and of overseas equities had risen by £8m and by £20m respectively and the value of bonds and the TAA had fallen by £5.5m and £1.4m respectively.
On Table 6, he reported that the value of private equity had risen by £3.8m.
On Table 7, he reported that £1.8m of F & C Private Equity Trust ‘B’ had been bought, there had been cash calls from Partners Group and Adam Street and there had been sales of £1m of which £50,000 had been realised from Partners Group investment.
On Table 8, he reported that for the quarter ended 30 June 2007, the fund had, overall, outperformed the benchmark: within the asset classes, UK equities, government bonds and the TAA had performed below the benchmark, overseas equities, private equity and hedge funds had outperformed the benchmark and property had performed in line with the benchmark. Overseas bonds had underperformed but this was not benchmarked. For the twelve months ended 30 June 2007, the fund had performed below the benchmark: in particular, UK equities and property had performed below the benchmark, overseas equities, private equity and hedge funds had performed above the benchmark and bonds had performed in line with the benchmark. For the three years ended 30 June 2007, he reported that the fund had outperformed the benchmark: in particular UK equities had performed below the benchmark, overseas equities, private equity, hedge funds and property had performed above the benchmark and bonds had performed in line with the benchmark.
On Table 9 (UBS), he said that for the quarter ended 30 June 2007, the fund had performed in line with the benchmark: within the asset classes, UK equities, bonds and property were in line with the benchmark and overseas equities had performed above the benchmark. For the twelve months ended 30 June 2007, the fund had performed below the benchmark: in particular, UK and overseas equities and property had performed below the benchmark and bonds were in line with the benchmark. For the three years ended 30 June 2007, he reported that the fund had performed below the benchmark: in particular, UK and overseas equities had performed below the benchmark, bonds were in line with the benchmark and property had outperformed the benchmark.
On Table 10, he reported that for the quarter ended 30 June 2007, Alliance Bernstein had outperformed the benchmark: in particular, UK equities had performed below the benchmark (but he pointed out that this was a small allocation) and overseas equities (in particular Europe and Japan) had performed above the benchmark. For the twelve months ended 30 June 2007, the fund had substantially outperformed the benchmark, highlighting UK and overseas equities (in particular Japan). For the three years ended 30 June 2007, he reported that the fund had outperformed the benchmark, in particular UK and overseas equities (particularly Japan).
On Table 10, he reported that for the quarter ended 30 June 2007 and for the twelve months ended 30 June 2007, Baillie Gifford had performed below the benchmark. For the three years ended 30 June 2007, its performance had been slightly better. On Table 10, he reported that for the quarter ended 30 June 2007 and for the twelve months ended 30 June 2007, Legal & General had performed below the benchmark and for the three years ended 30 June 2007, its performance had been in line with the benchmark.
RESOLVED: to receive the tables, and that the information contained in them be borne in mind, insofar as they relate to items 8E, 9E and 10E on the agenda.
43/07 EXEMPT ITEMS
RESOLVED: that the public be excluded for the duration of items 8E- 12E in the Agenda since it was likely that if they were present during those items there would be disclosure of exempt information as defined in Part I of Schedule 12A to the Local Government Act 1972 (as amended) and specified in relation to the respective items in the Agenda and since it was considered that, in all the circumstances of each case, the public interest in maintaining the exemption outweighed the public interest in disclosing the information.
44/07 WM COMPANY PRESENTATION ON THE PENSION FUND’S INVESTMENT PERFORMANCE FOR THE TWELVE MONTHS ENDED 31 MARCH 2007 (Agenda Item 6E)
Ms K Thrumble, the WM Company, reviewed the Oxfordshire Pension Fund's investment performance for the twelve months ended 31 March 2007. The presentation compared Oxfordshire's performance against its own customised benchmark and against the WM Local Authority Pension Fund Universe. The presentation also explored a number of other issues including the impact of currency on investments and local authority pension funds continuing to invest in equities.
She said that equities and property had performed strongly but the performance of bonds had been “pedestrian”. She highlighted the risk of investing overseas, in particular the effect of currency. For the last three years, the return on UK equities for local authority funds had been higher than the overall return achieved on the total assets. For the ten years, returns were in line with actuarial expectations. Real returns on equities and bonds had been about 4% and returns on property had been much higher. Local authorities’ pension funds had continued to increase their exposure to overseas equities.
The Oxfordshire fund’s asset allocation was similar to other funds but it had a higher asset allocation in alternative investments than the average fund and had the highest allocation in private equity. She said that 11 funds held hedge funds.
The performance for 2006/07 had been in line with benchmarks and had exceeded the benchmark for the three year period. She said that the changes to the management of the fund had added value. UBS and Baillie Gifford had underperformed, Alliance Bernstein had performed well for 2006/07 and Legal & General’s performance had been as expected. Private equity had performed well but the TAA had underperformed. For the 5- and 10-year periods, the fund had performed below the benchmark.
RESOLVED: to thank Ms Thrumble for her presentation and to receive the report.
45/07 OVERVIEW AND OUTLOOK FOR INVESTMENT MARKETS (Agenda Item 7E)
The Committee considered a report (PF7E) which set out an overview of the current and future investment scene and market developments across various regions and sectors. The Independent Financial Adviser responded to questions from members.
RESOLVED: to receive the Independent Financial Adviser’s written and oral reports, to consider any further action arising on them and to bear his conclusions in mind when considering the Fund Managers’ reports.
46/07 REPORT OF MAIN ISSUES ARISING FROM REPORTS OF THE FUND MANAGERS NOT REPRESENTED AT THE MEETING (Agenda Item 8E)
The Independent Financial Adviser reported that Baillie Gifford had underperformed the benchmark for the last quarter but pointed out that it had been a difficult market for their particular style of investment. He also reported that Legal & General had slightly underperformed the benchmark.
RESOLVED: to note the main issues arising from the reports.
47/07 UBS GLOBAL ASSET MANAGEMENT (Agenda Item 9E)
The representatives (Mr P Harris and Mr M Stemp) of the Fund Manager reported and reviewed the present investment of their part of the Fund and their strategy against the background of the current investment scene for the period which ended on 30 June 2007.
Mr Stemp said that there had been a strong equity market in this quarter but the market had now become more challenging. The cautious position his company had taken 18 months ago had proved to be too early.
Councillor Harvey asked that, in future reports, the target for the TAA Fund (cash + 17%) be included in their TAA bar chart. He reminded them that their investment performance continued to be poor and hoped to see signs of improvement soon.
RESOLVED: to receive the UBS Global Asset Management’s quarterly valuation and presentation reports for the quarter ending on 30 June 2007 and to ask, in future reports, progress against the targets be shown on the graphs.
48/07 ALLIANCE BERNSTEIN (Agenda Item 10E)
The representatives (Mr G Blunden and Mr P Rudden) of the Fund Manager reported and reviewed the present investment of their part of the Fund and their strategy against the background of the current investment scene for the period which ended on 30 June 2007.
In response to a question, Mr Rudden confirmed that they had sold holdings in a financial institution operating in the sub-prime markets and the fund had incurred a loss of £800,000 over the quarter.
RESOLVED: to receive Alliance Bernstein’s quarterly valuation and presentation report for the quarter ending on 30 June 2007.
49/07 SUMMARY BY THE INDEPENDENT FINANCIAL ADVISER (Agenda Item 11E)
The Independent Financial Adviser said that he had nothing to add to previous comments.
RESOLVED: to note the position.
50/07 PRIVATE EQUITY (Agenda Item 12E)
The Committee considered a report (PF12E) which summarised the investments made to date in private equity fund of funds limited partnerships.
RESOLVED: that
(a) Euros 15 million (£10 million) be committed to Partners Group 2008 Secondary Fund and US $15 million (£7.5 million) be committed to Partners Group Asia Pacific 2007;
(b) up to £12.0 million be committed to Adam Street Global Fund; and
(c) (Councillor Harris abstaining) the target range for private equity be raised from 2% - 6% to 4% - 8% to straddle the benchmark target of 6%.
ITEMS FOLLOWING THE RE-ADMISSION OF THE PRESS AND PUBLIC
51/07 STOCK LENDING (Agenda Item 13)
The Committee considered a report (PF13) which reviewed the Pension Fund's stock lending programme, which had been put in place in April 2004. The risk control processes remained broadly the same as in 2004. The fee income generated for the Pension Fund had increased significantly and was forecast to exceed £100,000 in 2007/08. The Custodian had also agreed that the share of lending revenue received by the Pension Fund would be increased from 60% to 70% from 1 September, which would further enhance the total revenue received.
RESOLVED: to note the contents of the paper.
52/07 DRAFT ANNUAL REPORT AND ACCOUNTS FOR 2006/07 (Agenda Item 14)
The Committee considered the draft Annual report and Accounts for 2006/07 (PF14) which showed the final accounts for the Pension Fund for the year ended 31 March 2007 and provided details on how the Fund operated, including sections on membership and investments. The Report also included the Statement of Investment Principles, which had been updated in the light of minor changes that had taken place during the year.
RESOLVED: to receive the draft report and accounts for 2006/07 and to agree the Statement of Investment Principles.
53/07 PENSION FUND INVESTMENT AND ADMINISTRATION EXPENSES OUTTURN REPORT FOR THE YEAR ENDED 31 MARCH 2007 (Agenda Item 15)
The Committee considered a report (PF15) which compared actual with budgeted costs for both Investment and Administration expenses for the year ended 31 March 2007. Reasons for the larger variations were explained in the report.
RESOLVED: to receive the report and to note the out-turn position.
54/07 THE NEW LOOK LOCAL GOVERNMENT PENSION SCHEME (Agenda Item 16)
The Committee considered a report (PF16) which updated the Pension Committee on the latest position with regard to the Government's proposals to implement a New Look Local Government Pension Scheme with effect from 1 April 2008. The report highlighted those aspects of the new scheme covered in Regulations already laid before Parliament, and those currently still going through a consultation process. The Committee was invited to note the position and the concerns regarding how much still needed to be achieved if the new look scheme was to be successfully implemented with effect from 1 April 2008. In respect of the latest consultation on further extensions to the transitional protection arrangements, following the removal of the 85 year rule from the regulations, the Committee was invited to endorse a response which argued strongly against the proposed further extension.
RESOLVED: to note the latest position on the implementation of the New Look 2007 Scheme, and to:
(a) approve the increase in establishment by one pensions administrator, and the appropriate increase in budget provision, in order to provide greater capacity in dealing with the significant workload arising from the scheme changes; and
(b) approve the letter at Annex 1 to the report as this Committee’s formal submission to the latest consultation on extending the transitional protections following the removal of the 85 year rule from the scheme.
55/07 AMENDMENT (NO 3) REGULATIONS (Agenda Item 17)
The Committee considered a report (PF17) which considered the introduction of a pension administration strategy and reviewed the current communication policy.
RESOLVED: to:
(a) endorse the review and continuation of the current communication policy;
(b) endorse the introduction of the administration strategy.
56/07 ADMISSION AGREEMENTS (Agenda Item 18)
The Committee considered a report (PF18) which updated members on admission agreements.
RESOLVED: to note the report.
57/07 ANNUAL PENSION FORUM (Agenda Item 19)
The Head of Finance & Procurement advised the Committee that, if the Forum was held on 4 December 2007, it could not be held at County Hall.
RESOLVED: to endorse the decision to hold the next annual forum on 4 December 2007, noting that the venue would be advised in due course.
58/07 CORPORATE GOVERNANCE AND SOCIALLY RESPONSIBLE INVESTMENT (Agenda Item 20)
The Head of Finance & Procurement reported that she had nothing specific to report for this quarter but that it should be noted that all the managers had included pages within their valuation reports which provided details on their voting at company AGMs, engagement with companies and their involvement with other socially responsible initiatives.
RESOLVED: to note the report.
................................................................................... in the Chair
Date of signing.................................................................. 2007
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