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ITEM PF3

PENSION FUND COMMITTEE – 25 NOVEMBER 2005

Minutes of the Meeting commencing at 10.00 am and finishing at 1.21 pm

Present:

The Committee considered the matters, reports and recommendations contained or referred to in the agenda for the meeting, together with a schedule of addenda tabled at the meeting, and decided as set out below. Except insofar as otherwise specified, the reasons for the decisions are contained in the agenda, reports and schedule, copies of which are attached to the signed Minutes.

59/05. DECLARATIONS OF INTEREST

Councillors Harvey, Hayward, Moley, Price (co-opted member) and Rose declared personal interests as members of the Pension Scheme under the provisions of Section 18 of the Local Government and Housing Act 1989.

60/05. MINUTES

The Minutes of the meeting of the Committee held on 26 August 2005 were approved and signed, subject to Minute 50/05 (WM Performance Services Presentation on the Pension Fund’s Investment Performance for the Twelve Months ended 31 March 2005), Paragraph 1, the final sentence being amended as shown in italic as follows:

She also reported that on page 9 of the booklet, the portfolio returns for Baillie Gifford were incorrect and should read "14.7" for the 12 months ending 31 March 2005 and "17.5" for the period commencing 30 September 2003 to 31 March 2005, producing relative returns against the benchmark of –0.9 and +0.1 for the respective periods.

61/05. 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, the custodian had 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 September 2005. He highlighted that the Fund was overweight in Japanese equities and underweight in bonds. He referred to the tables for the Fund Managers and highlighted that UBS was slightly overweight in UK, European and Emerging Markets equities but underweight in Asia Pacific equities. Alliance Bernstein was substantially underweight in UK equities and heavily overweight in Overseas equities and was nearly fully invested. Legal & General was underweight in UK gilts and Corporate Bonds. Legal & General and Baillie Gifford were both nearly fully invested. The Hedge Funds were slightly underinvested. He reported that for the investment performance over the two years ended 30 September 2005 the Fund had underperformed in UK equities, outperformed in Overseas equities and Private Equity, and bonds were nearly in line with the benchmark return. The property assets, which had been held by the former Fund Managers and taken on by UBS had now been sold. The new investments in property had performed well. He highlighted on Table 9 that UBS had underperformed on UK equities over the two-year period and on Table 10 that Alliance Bernstein had overperformed on Overseas equities, in particular European and Japanese, and on UK equities over the two-year period. Legal & General’s performance was in line with the benchmark. He added that Baillie Gifford would explain their underperformance in their presentation.

In response to a question, Mr Bushell reported that in October £37m of cash held in house had been transferred to the Fund Managers for investment.

RESOLVED: to receive the tables, and that the information contained in them be borne in mind, insofar as they relate to items 7E, 8E and 9E on the agenda.

62/05. EXEMPT ITEMS

RESOLVED: that the public be excluded during the consideration of items 6E-11E in the Agenda since it was likely that if they were present during those items there would be a disclosure of "exempt" information as described in Part I of Schedule 12A to the Local Government Act, 1972 and specified below each item in the Agenda, i.e. information relating to the financial or business affairs of any particular person (other than the authority).

PROCEEDINGS FOLLOWING THE WITHDRAWAL OF THE PRESS AND PUBLIC

63/05. OVERVIEW AND OUTLOOK FOR THE INVESTMENT MARKETS*

(Agenda Item 6E)

The Independent Financial Adviser reported orally giving an overview of the current and future investment scene and market developments across various regions and sectors.

RESOLVED: to receive the Independent Financial Adviser’s written and oral reports and to bear the Independent Financial Adviser’s conclusions in mind when considering the Fund Managers’ reports.

64/05. REPORT OF MAIN ISSUES ARISING FROM REPORTS OF THE FUND MANAGERS NOT REPRESENTED AT THIS MEETING*

(Agenda Item 7E)

The Independent Financial Adviser reported orally on the main issues arising from the presentations from Alliance Bernstein and Legal & General in conjunction with information contained in the Tables (Agenda item 5). He reported that Alliance Bernstein’s performance had been excellent.

RESOLVED: to note the main issues arising from the quarterly reports and presentations by Alliance Bernstein and Legal & General for the quarter that ended 30 September 2005 and the Independent Financial Adviser’s comments.

65/05. UBS GLOBAL ASSET MANAGEMENT*

(Agenda Item 8E)

The representatives (Mr K Barker and Mr J Anderson (Overseas Markets)) of the Fund Manager reported on the performance of the portfolio and their strategy for the quarter that ended 30 September 2005 with reference to the presentation report which had been circulated separately. They responded to questions.

RESOLVED: to receive UBS’s quarterly and presentation reports for the quarter ending 30 September 2005.

66/05. BAILLIE GIFFORD*

(Agenda Item 9E)

The representatives (Mr I McCombie and Mr L Robb) of the Fund Manager reported on the performance of the portfolio and their strategy for the quarter that ended 30 September 2005 with reference to the presentation report which had been circulated at the meeting. They responded to questions.

RESOLVED: to receive Baillie Gifford’s quarterly and presentation reports for the quarter ending 30 September 2005.

67/05. SUMMARY BY THE INDEPENDENT FINANCIAL ADVISER*

(Agenda Item 10E)

The Independent Financial Adviser summarised the foregoing reports of the Fund Managers. He said that he was pleased to hear that, although UBS and Baillie Gifford had both found the markets difficult, they were not proposing to change their strategies.

RESOLVED: to note the Independent Financial Adviser’s comments.

68/05. ANNUAL REVIEW OF THE INDEPENDENT FINANCIAL ADVISER*

(Agenda Item 11E)

The Committee considered a report (PF11E) which reviewed the activities of the Independent Financial Adviser for the twelve-month period ending 30 November 2005. For the second consecutive year he had exceeded his contractual duties but this had been during a period of major changes for the Oxfordshire Pension Fund. Furthermore, his knowledge and skills had been deployed in preference to using other external consultancy services where the Pension Fund had underspent on its budget. The Adviser had indicated that he would be willing to continue for at least the next twelve months if the Committee wished to reappoint him.

RESOLVED: to:

1. reappoint the Independent Financial Adviser for a further twelve months and to upgrade his fee by 2.95%, in line with the Local Authority Green Book Pay Award for 2005/06, to take effect from 1 December 2005;
2. award the Independent Financial Adviser an ex gratia sum as set down in the report (11E) in recognition of the extra duties he had carried out over the last two years;
3. request officers to keep the Independent Financial Adviser’s fee within budget going forward.




ITEMS FOLLOWING THE RE-ADMISSION OF THE PRESS AND PUBLIC

69/05. FUTURE PROGRAMME AND TIMETABLE FOR MONITORING INVESTMENT MANAGERS ARRANGEMENTS

(Agenda Item 12)

The Committee considered a report (PF12) which set out the timetable for Pension Fund Committee meetings and officer meetings with the managers up until February 2007.

RESOLVED: to agree the programme of manager meetings as set out in the report.

70/05. PROGRESS ON REBALANCING TO THE NEW STRATEGIC BENCHMARK AND IMPLEMENTING THE TACTICAL ASSET ALLOCATION FUND

(Agenda Item 13)

The Committee considered a report (PF13) which summarised the outcome of meetings held with the UBS Multi-Asset, Property, Private Equity and Hedge Fund management teams on 13 September 2005 and a meeting with Alliance Bernstein on 28 September 2005. The Committee was advised that the Pension Fund had been successfully rebalanced to the new strategic benchmark during October 2005.

RESOLVED: to note the report.

71/05. PRIVATE EQUITY REVIEW

(Agenda Item 14)

The Committee considered a report (PF14) which reviewed the existing arrangements for managing private equity. The Committee was advised that the investments were mainly held in quoted investment trusts and were managed in-house by the Independent Financial Adviser, who in turn received material and recommendations from the UBS Investment Banking Division. The report concluded that there was no reason why this arrangement could not continue, post Mr Bushell's retirement, with the task being carried out by a newly appointed independent financial adviser. The report also explored the various options for investing the further 2% earmarked for private equity and recommended investing in a private fund of funds. This would help to improve the portfolio's geographical and financing stage distribution weightings and also offered a different management option to supplement the existing arrangement. If the Committee agreed to invest in a private equity fund of funds, this would necessitate going out to tender and it was recommended that bfinance, the company the Committee had used for the major Fund review in 2003, be appointed to assist in this exercise.

Councillor Harris moved and Councillor Price seconded that an elected member be involved in the appointment of an appropriate manager(s). The motion was lost by 5 votes to 2.

RESOLVED: to:

1. invest an initial sum of £20 million in a private equity fund of funds with the option to extend this to 6% of the total Oxfordshire Pension Fund over the longer term;
2. appoint bfinance to carry out the tendering arrangements;
3. request officers and the Independent Financial Adviser to short list, interview and appoint an appropriate manager or managers, having regard to achieving a well diversified portfolio in terms of both geographical and financing stage;
4. request officers to report the outcome of this exercise to the Pension Fund Committee in May 2006.




72/05. CIPFA LOCAL AUTHORITY PENSION FUND INVESTMENT STATISTICS

(Agenda Item 15)

The Committee considered a report (PF15) which compared the Oxfordshire Pension Fund's asset allocation with that of other local authority and private sector pension funds. It also compared the 1-, 3-, 5- and 10-year investment performance returns with those of other English County Councils. Oxfordshire was the top performing local authority pension fund over the one-year period with a return of 13.5%. The report compared this return to the investment return assumptions made by the Actuary in his March 2004 valuation.

RESOLVED: to:

1. receive the report;
2. ask the Chief Executive to issue a press release on the performance of the Fund over the last year.
   
   

73/05. REVIEW OF THE GLOBAL CUSTODIAN

(Agenda Item 16)

In April 2003 the Oxfordshire Pension Fund appointed ABN AMRO Mellon, as its first independent global custodian, on a three-year fixed contract with the option to extend for a further two years. The report (PF16) reviewed the performance of ABN AMRO drawing on the results of three externally conducted custody surveys and the views of officers and the Independent Financial Adviser. The review concluded that the Pension Fund had received a cost effective and high quality service and saw no reason why this should not continue. The Committee was advised to exercise the option to extend the custody contract for a further two years.

RESOLVED: to exercise the option to extend the custody contract with ABN AMRO Mellon at 31 March 2006 for a further two years until 31 March 2008.

74/05. LATEST POSITION ON THE LOCAL GOVERNMENT PENSION SCHEME

(Agenda Item 17)

The Committee considered a report (PF17) which sought to update it on the latest position on the Local Government Pension Scheme (LGPS), following the revocation of the April 2005 changes. The Head of Finance & Procurement reported that the tri-partite meeting had been held on 21 November when it had been reported that the 85-year rule should be removed from the Scheme by October 2006 because of age discrimination legislation. In view of the delay in the removal of the 85-year rule, the additional costs incurred by the Pension Fund could be met from potential changes to the pension arrangements. Changes might include the option for employees of receiving an increase in their lump sum in return for a reduced pension. The decision of the Deputy Prime Minister was expected in the forthcoming week.

RESOLVED: to note the current position, and in the absence of Government regulations (or a clear commitment to produce the necessary regulations) which avoid the costs of revocation falling on employers, to instruct the Head of Finance & Procurement to write in the first week of December to all scheme employers, putting them on notice of the additional contributions which will be voluntarily sought with effect from April 2006 (but not called for until later in 2006/07).

75/05. PENSION FUND AUDIT AND FORMAL ADOPTION OF THE ANNUAL REPORT AND ACCOUNTS FOR 2004/05

(Agenda Item 18)

The Committee was informed that it had approved a draft of the Annual Report and Accounts at its meeting on 26 August and it was now asked formally to adopt the Report.

RESOLVED: to adopt formally the Pension Fund Annual Report and Accounts 2004/05.

76/05. CORPORATE GOVERNANCE AND SOCIALLY RESPONSIBLE INVESTMENT

(Agenda Item 19)

The Head of Finance & Procurement said that there was nothing to report.

77/05. PAYMENT OF DEPENDENT’S PENSION BENEFIT

(Agenda Item 20)

The Committee had previously asked for all decisions concerning discretion relating to payment of dependent's benefits to be referred to it. The Committee considered a report (PF20) in which the Committee was asked to decide whether a child had been in continuous education and was therefore entitled to a child’s pension.

RESOLVED: to

1. treat the education of the elder daughter referred to in the report as continuous for the purposes of the payment of a dependent’s pension benefit under the Local Government Pension Scheme Regulations;
2. delegate authority to the Head of Finance & Procurement to determine cases whether the education or training should be treated as continuous where an eligible child for the payment of a dependent’s pension benefit under the Local Government Pension Scheme Regulations is over 17 and has been engaged continuously in full-time education or in training for a trade, profession or vocation has taken a gap year, subject to a report to the Committee on such determinations.
   
   

(Mr Leeding left the room for this item.)

78/05. ADMISSION AGREEMENTS

(Agenda Item 21)

The Committee considered a report (PF21) which highlighted particular issues relating to admission agreements for consideration and sought the Committee’s views on how to deal with future admission agreements. The report also asked the Committee to consider an application from one body to join the Oxfordshire Pension Fund.

RESOLVED: to

1. require that a bond be put in place in accordance with advice from the Fund Actuary for all new admission agreements;
2. review bonds values triennially;
3. agree the admission of KGB Cleaning to the Pension Fund.

in the Chair

Date of signing 2006

* The reports relating to the exempt items have not been made public and should be regarded as strictly private to those members and officers entitled to receive them.

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