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ITEM PF13
PENSION FUND COMMITTEE – 21 FEBRUARY
2003
UPDATE ON THE APPOINTMENT OF A
GLOBAL CUSTODIAN
Report by Director for Business
Support & County Treasurer
Background
- At the Pension Fund Committee meeting
held on 6 November 2002 members asked officers to invite suitably qualified
consultants to assist the Committee in the tendering and appointment
of a single global custodian.
- A global custodian is responsible for
the safe keeping of assets, dividend and other income collection and
settlement of trades in all asset classes and markets.
- The Pension Fund currently uses the custodial
arms of its incumbent managers - Schroder Nominees Ltd for Schroders
and Deutsche Bank AG for Deutsche Asset Management. Larger Investment
Houses had traditionally provided joint management and custody arrangements
for balanced fund mandates, and charged an all-inclusive fee for both
services. However, there have recently been changes to this arrangement
including the sale by Deutsche Bank of its custody operations to State
Street Corporation.
- The Myners Report recommended that for
larger institutional pension funds the appointment of a single global
custodian is desirable.
Implications of New Management
Structure on Custody Arrangements
- The Oxfordshire Pension Fund’s new specialist
management arrangements will comprise between four to six managers compared
to the current arrangement of only two managers.
- Many of the smaller specialist managers
do not provide custodial arrangements for their clients and quite rightly
regard this as the responsibility of the client. Specialist management
structures tend to generate more management changes over a given period
and an independent custodian is more efficient in these circumstances.
- It is for the above reasons that the
Oxfordshire Pension Fund agreed to appoint a single global custodian.
Appointment of PSolve
- In October 2002 officers and Tony Bushell,
the Independent Financial Adviser, received a presentation from PSolve,
who are a pension fund consultant. PSolve have made significant advances
in providing consultancy services in the local authority market over
the last nine months and were successfully employed in Oxfordshire’s
best value review of Pensions Administration. They were asked to provide
details of their experience in dealing with the tendering arrangements
and the appointment of a global custodian. They have recently carried
out similar exercises for other local authority pension funds and satisfied
officers and Independent Financial Adviser that they had the resources
and expertise to assist the Fund in carrying out a thorough review.
- PSolve’s fee for carrying out this work
is £11,000, which is lower than the fees charged by the mainstream actuarial
consultants, and the officers were happy to appoint them on the basis
of the quality of their service and competitive fee.
Progress made to date
- The tender and appointment process is
now well under way. We were advised by PSolve that only a handful of
custodians were adequately resourced to manage a large institutional
pension fund and consequently PSolve initially invited the following
seven custodians to tender: -
Citibank, Brown Brothers
Harriman, State Street, Northern Trust, ABN AMRO Mellon, Bank of New
York and HSBC.
Citibank and Brown Brothers
Harriman declined to tender on the grounds that the account is not large
enough for them to be able to earn sufficient revenue.
- The evaluation process and any company
visits should have taken place before the Pension Fund Committee on
21 February. Presentations and the final selection by the officers and
Independent Financial Adviser are scheduled to take place in London
on 28 February. It is suggested in the recommendation below that the
appointment of the Global Custodian be left to the officers and the
Independent Financial Adviser.
RECOMMENDATIONS
- The Committee is RECOMMENDED
to authorise the Director for Business Support & County Treasurer,
to be advised by the Independent Financial Adviser, to agree the appointment
of a Global Custodian, for a period of three years, commencing from
1 April 2003.
CHRIS GRAY
Director for Business Support & County Treasurer
Background Papers: Nil
Contact Officer: Tony
Wheeler, Directorate for Business Support Tel: (01865) 815287
February 2003.
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