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ITEM PF13
PENSION
FUND COMMITTEE – 29 AUGUST 2003
THE TRANSFER
OF ASSETS TO THE FOUR NEW MANAGERS
Report by
the Head of Finance
Introduction
- At the May 2003
Pension Fund Committee Meeting it was reported that Legal and General
had been appointed as the Fund’s Transition Manager. Legal and General’s
role was to take the existing Schroder and Deutsche Asset Management
portfolios and complete the restructuring in order to deliver the new
portfolios to the four newly appointed managers in the most timely,
cost effective and efficient manner.
The Transition
Process
- The Schroder and
Deutsche Investment Management Agreements were terminated on 13 June
2003 and the management of the assets was transferred to Legal and General
on this date.
- Not all the assets
were transferred to the Transition Account. Schroders and Deutsche retained
the pooled vehicles, with an instruction to realise these by the most
efficient means in order to achieve the best price. In the case of the
property units the managers were instructed to transfer these to UBS
Global Asset Management, who now manage property within the multi asset
brief. All the pooled vehicles were successfully sold or transferred
during the first ten days of July.
- The transition
plan drawn up following a meeting between Legal and General, Oxfordshire
County Council and ABN AMRO Mellon, the Fund’s custodian, agreed the
transition date as 11 July. It was essential that all four management
agreements were signed by all parties and in place before the transition
date. This was successfully achieved.
- There were a number
of issues arising from the investment management agreements where officers
had to make decisions, but only did so after consulting the Independent
Financial Adviser. All the decisions made were considered to be in the
Fund’s best interest. The officers wrote to the Pension Fund Committee’s
Chairman, Deputy Chair and Third Group Spokesperson on 5 June and invited
them to raise any issues, which they were not entirely happy with. The
Chairman contacted the officers to confirm that he had read the letter
and had no comments to make. The letter is shown at Annex 1.
- One of the issues
referred to in the letter was a request by Legal and General to use
the iBoxx Sterling Non-Gilt All Stocks Index as the benchmark for corporate
bonds. UBS Global Asset Management, who is the new multi assets manager,
has also agreed to use this index as its benchmark for corporate bonds.
- On 11 July the
assets were successfully transferred to the four new managers. At the
time this report went to print officers were still waiting to receive
a detailed report from Legal and General assessing the success of the
transition exercise. The officers will report orally on this exercise.
Cash held
in-house
- As part of the
transition process we took into account the 6% of the Pension Fund,
which has been earmarked for private equity and hedge funds following
the asset liability study. We also took into account an outstanding
transfer of £5 million to the Berkshire Pension Fund, as a result of
the transfer of the Probation Service.
- As a consequence
of taking into account these commitments the cash balance held in-house
will be higher than normal. A working balance of £4 million is normally
held but following the completion of the transition the balance is £30million.
- The cash balance
is invested by the Council’s Treasury Management team in the wholesale
money markets and is therefore earning a competitive rate of interest
for the Pension Fund. The alternative to holding cash in-house would
have been to give the cash to the four new managers. However, because
this would have been on a temporary basis this may have caused the managers
some inconvenience. I discussed this issue with the Independent Financial
Adviser and he agreed that it is best to hold the cash in-house on a
temporary basis pending investment. He does not consider that holding
cash as a temporary measure is a risk in the current markets.
Investment
Measurement Performance
- During the June
2003 quarter officers held a meeting with ABN AMRO Mellon and Russell
Mellon CAPS to agree the future investment performance reporting arrangements
for the individual managers and the total fund. Russell Mellon CAPS
was provided with details of the Fund’s new customised benchmark and
the managers’ specific benchmarks.
- It was agreed
that the custodian would supply the investment data for performance
measurement compared to the previous arrangement whereby the fund managers
supplied data. This provides a level of independence.
- It was agreed
that the new managers’ individual investment performance would not be
measured until the commencement of their first complete month of management,
which will be 1 August 2003. However, the Fund’s investment performance
at total level with be measured from the 1 July, which indeed has been
the position throughout the whole of the transition process.
- During the discussions
with Russell Mellon CAPS it was noted that there is currently no performance
benchmark, target or investment range for private equity. I have discussed
this issue with the Independent Financial Adviser and we would recommend
the following: -
Benchmark
– FTSE Smaller Companies Index
Target
– To outperform the FTSE Smaller Companies (ex investment trusts) Index
by 1% per annum over rolling three-year periods.
Investment
Range – 2% to 6%
Summary
of the Management and Restructuring Exercise
- Annex 2 provides
a summary of the management and custody changes that have taken place.
RECOMMENDATIONS
- The Committee
is RECOMMENDED to
- note
the issues set out in the letter to the Chairman, Deputy Chair
and Third Group Spokesperson as set out in Annex 1; and
- agree
the benchmark, target and investment range for private equity
as set out at paragraph 14 of the report.
CHRIS
GRAY
Head of Finance
Background
Papers - Nil
Contact Officer -Tony Wheeler, Pension Fund Investments Manager. Tel
(01865) 815287
August
2003
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