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ITEM PF3

PENSION FUND COMMITTEE

Minutes of the meeting held on Friday 21 November 2003 commencing at 10.00 am, finishing at 3.35 pm and reconvening on Monday 1 December 2003 commencing at 9.00 am, and finishing at 9.35 am

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.

66/03 MINUTES

The Minutes of the meeting of the Committee held on 29 August 2003 were approved and signed.

With regard to Minute 57/03(b) – Hedge Funds – Mr Wheeler reported that officers would be looking to invest in four funds of hedge funds and not two or three, as specified.

With regard to Minute 64/03(b) – Annual Forum – Mr Phillips reported that a new Actuary had not been appointed as yet. He added that as a consequence of this, it would be he who would be making the presentation at the Annual Forum on the impact of investment performances over the last 3 years.

67/03. ORDER OF BUSINESS

It was AGREED that agenda item 24 should follow item 11E and items 15 and 22, respectively, should follow item 13.

68/03. OVERVIEW OF PAST AND CURRENT INVESTMENT POSITION

(Agenda Item 5)

The transition process had been completed during the early part of the quarter and the four new fund managers had commenced management of their portfolios from 11 July 2003.

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 2003. This report was supported by the appropriate charts of economic and market trends.

RESOLVED: to receive the charts and tables, and the information contained in them be borne in mind insofar as they relate to items 7E to 10E in the Agenda.

69/03. 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 PRESS AND PUBLIC

70/03. OVERVIEW AND OUTLOOK FOR 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. His oral report and the report (PF6E), which was not exempt, was supported by relevant tables of economic and market trends, where appropriate.

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

71/03. USB GLOBAL ASSET MANAGEMENT

(Agenda Item 7E)

Mr Matthew Stemp and Mr Kevin Barker reported on the performance and strategy of the UBS muli-asset portfolio of the quarter that ended on 30 September 2003, with reference to the separate meeting report as circulated. Members had been reminded that because the managers had not commenced managing their portfolio until 11 July 2003 they had not therefore been managing assets for a complete quarter.

Mr Stemp and Mr Barker undertook at the request of the Committee to produce an annual update report of all the house funds held by UBS.

Messrs Stemp and Barker responded to members’ questions concerning performance.

RESOLVED: to receive the UBS Asset Management’s written report for the part period ended 30 September 2003.

72/03. BAILLIE GIFFORD

(Agenda Item 8E)

Mr Leslie Robb and Mr Ian McCombie reported on the performance and strategy of the Baillie Gifford’s UK Equity portfolio of the quarter that ended on 30 September 2003, with reference to the separate meeting report as circulated.

Mr Robb and Mr McCombie undertook, at the request of the Committee, to produce an annual update report of all the pooled house fund’s Baillie Gifford held.

Messrs Stemp and Barker responded to members’ questions concerning performance.

RESOLVED: to receive the Baillie Gifford written report for the part period ended 30 September 2003.

73/03. REPORT OF MAIN ISSUES ARISING FROM PRESENTATIONS AND REPORTS GIVEN BY FUND MANAGERS’ NOT REPRESENTED AT THIS MEETING.

(Agenda Item 9E)

Officers and Mr Bushell received presentations from Alliance Bernstein and Legal and General for the quarter ended 30 September 2003, at County Hall. Mr Bushell reported orally on the main issues arising from these presentations in conjunction with information contained in Tables 1, 2 and 4 (agenda item 5) and the managers’ quarterly valuation reports.

RESOLVED: to note the main issues arising from the presentations.

74/03. SUMMARY BY THE FINANCIAL ADVISER

(Agenda Item 10E)

A summary by the Financial Adviser was not deemed necessary.

75/03. ANNUAL REVIEW OF THE INDEPENDENT FINANCIAL ADVISOR

(Agenda Item 11E)

The Committee considered a report (PF11E) which reviewed the activities of the Independent Financial Adviser over the twelve-month period ending 30 November 2003. This was a period of extensive change for the Pension Fund and the Independent Financial Adviser was heavily involved in those changes. As a consequence of this, the Committee had been recommended to upgrade his basic fee in line with the retail price index and to award an appropriate ex-gratia payment in recognition of this.

RESOLVED: (on a motion by Councillor Harris seconded by Councillor Law and carried unanimously) to:

1. reappoint the Independent Financial Adviser for a further twelve months and to upgrade his fee in line with the retail price index to take effect from 1 December 2003;
2. formally recognise the considerable extra duties the Independent Financial Adviser had carried out over the last two years and to award him an ex gratia payment to the sum as set down in the report; and
3. request the officers to include an item in the 2004/05 Pension Fund Business Plan stating the need, with the assistance of the Independent Financial Adviser, to find and recommend a suitable replacement to succeed Mr Bushell on his retirement.

 

ITEMS FOLLOWING THE RE-ADMISSION OF THE PRESS AND PUBLIC

76/03. INTRODUCTION TO PROPOSED CHANGES TO THE LOCAL GOVERNMENT PENSION SCHEME

• phasing out of 85 year rule;
• increasing earliest age for receiving benefits from 50 to 55;
• flexible retirement & incentivising members to remain in employment;
• options to increase employee contributions, and;
• other issues such as partner benefits and amendments to the redundancy provisions of the Scheme.

RESOLVED: to:

1. note the report and endorse the officers’ comments on the draft regulations as contained in Annex 1 to the report PF24;
2. with regard to the Phase 2 Policy Proposals Discussion Paper, members commented as follows:

Paragraphs	Comments
21-24 Phasing of the ’85 year rule’ for existing members.	Support for proposal.
28-31 Increasing the earliest at which LGPS benefits may be paid, other than on the grounds of ill-health, from 50 to 55.	Support for proposal.
32-37 Flexible retirement and incentivisation methods to assist retain Scheme members in employment.	Support for proposals generally, though could be made more flexible with benefit.
38-41 Further streamline the phase one amendments to the LGPS IDRP provisions inline with the amendments to be made under the forthcoming Pensions Bill.	Not particularly in favour of this change.
42-43 Simplification changes to the Scheme’s provisions.	Support for proposals.
44-51 Employees’ Contribution Rate.	Support continuance of Scheme but realignment of employees and employers’ contributions for all employees.

51-53 Partners Benefits	No strong feelings about proposals.
54-58 Redundancy	Acceptance of proposals outlined in paragraph 57
59 Discretionary Payments	Accepted on the proviso that any change is properly presented to staff so that there is an understanding on their part.

77/03. UPDATE ON INVESTMENT IN HEDGE FUNDS

(Agenda Item 12)

Officers and the Independent Financial Adviser had met with UBS Wealth Management in London to agree an appropriate strategy for the investment in hedge funds. An oral report was given on the issues that had arisen from this and which were currently being addressed.

RESOLVED: to note the report.

78/03. REPORT OF OFFICER MEETING WITH ABN AMRO MELLON

(Agenda Item 13)

The Committee considered a report (PF13) which summarised a series of presentations made by the Fund’s new custodian, ABN AMRO Mellon, to Mr Wheeler and to the Independent Financial Adviser. Areas addressed included commission recapture, standardised proxy voting reporting, risk reporting and transaction cost reporting. In addition, a detailed presentation on stock lending had been given and this was the subject of a separate report on the agenda (Agenda Item 14). The report also made several recommendations arising from the presentations.

RESOLVED: to:

1. request the officers to provide a further report on Commission Recapture in 2004/05, following the receipt of costing analysis by ABN AMRO Mellon based on at least six months trading activity by the Oxfordshire Pension Fund; and
2. request the officers to report back on ABN AMRO Mellon’s new proxy voting report as soon as it had been produced.
   
   

79/03. CORPORATE GOVERNANCE AND SHAREHOLDER ACTIVISM

(Agenda Item 15)

The Committee considered a report (PF15)

Following a presentation by Hermes to the Pension Fund Committee at their meeting on 29 August 2003, members had requested officers to report back on any issues arising from the presentation, and to advise whether the Oxfordshire Pension Fund should be taking any further action to comply with the Myners Review on shareholder activism/engagement.

RESOLVED: to:

1. maintain the Pension Fund’s current arrangements on corporate governance for the time being and to monitor how the new managers voted and engaged with companies; and
2. request officers to include an item in the 2004/05 Business Plan to explore the option of becoming a member of the Local Authority Pension Fund Forum.
   
   

80/03. SOCIALLY RESPONSIBLE INVESTMENT AND CORPORATE GOVERNANCE ISSUES

• The Myners Report had recommended a more interventionist approach by managers in their dealings with companies, Government Ministers were threatening legislation to force activism on investors if they had not become more interventionist. Both Patrick Hewitt, Trade Secretary and Ruth Kelly, Financial Secretary to the Treasury had made recent speeches on this issue. A few weeks ago Ruth Kelly, had called for a meeting with Fund Managers to discuss how the industry could be more activist. However, recent evidence had indicated that managers had become more proactive on corporate governance issues. For example over the Summer they had voted down a big company’s pay policy for the first time, at Glaxo-SmithKline; and it was not only Fidelity that was instrumental in the removal of Michael Green as Chairman of the proposed Carlton Granada merger. The FT also reported that Fidelity was backed by UBS and L&G.
• Mr Wheeler directed the Committee’s attention to a letter dated 14 November 2003 from Christine Farnish, Chief Executive of the NAPF which made the following points:
• New corporate governance guidelines in January 2004;
• The intention to reduce the number of "abstain" recommendations;
• NAPF’s intention to increase the focus on activism.

BREAK FOR LUNCH

81/03. ADJOURNMENT OF MEETING

A member of the Committee having been taken ill, the Chair formally adjourned the meeting at 3.35 pm.

82/03. STOCK LENDING

(Agenda Item 14)

The Committee considered a report (PF14) which described the activity of stock lending and which also explained how the Pension Fund’s custodian, ABN AMRO Mellon, had addressed areas of associated risk, including that of collateral; daylight exposure; the credit worthiness of counterparties; and default. The report advised that the Local Government Pension Scheme (Management and Investment of Funds) Regulation S 1998 allowed local authority pension funds to lend 25% of their total funds, which for Oxfordshire would equate to approximately £150 million. On a sum of £150 million they had estimated a total earnings of around £30,000, of which £18,000 would be paid to the Fund. Accordingly, the Committee were recommended to request ABN AMRO Mellon to lend stock on behalf of the Oxfordshire Pension Fund.

RESOLVED: to request the officers to further discuss the scope for carrying out stock lending with the Pension Fund’s global custodian, ABN AMRO Mellon, following the substantial changes in the Fund’s investments, and to report the outcome to a future meeting of the Committee.

83/03. CIPFA LOCAL AUTHORITY PENSION FUND INVESTMENT STATISTICS

(Agenda Item 16)

The Committee considered a report (PF16) which compared the Oxfordshire Pension Fund’s asset distribution with that of other local authority pension funds. It also provided a comparison of the Fund’s 3, 5 and 10 year investment performance with those of other English county councils.

RESOLVED: to receive the report.

84/03. REVIEW OF THE PREMATURE RETIREMENT COMPENSATION SCHEME FOR TEACHERS

(Agenda Item 17)

The procedure is attached for consideration at (PF17).

The current scheme had been adopted in 2001 and was due to expire on 31 December 2003. The Teachers Joint Committee, at their meeting on 13 November had had the document before them for consultation purposes.

Mrs Dean reported that the Teachers had indicated their satisfaction with the current scheme without amendment and had also agreed that in the future, the scheme should only be brought before them, and subsequently to this Committee, if there were any proposed changes to be made.

RESOLVED: to renew the current Premature Retirement compensation Scheme for Teachers without amendment.until 31 December 2004.

85/03. PERFORMANCE OF ADDITIONAL VOLUNTARY CONTRIBUTIONS (AVC) PROVIDER

(Agenda Item 18)

The Committee considered a report (PF18) which summarised the annual review of AVC provision by Watson Wyatt pension consultations, including the Council’s existing arrangements with Prudential and their investment performance.

RESOLVED: to:

1. receive the report; and
2. request the officers to include the fundamental review of AVC arrangements in the Business Plan for 2004/05.
   
   

86/03. AUDIT COMMISSION REPORT – REPORTS ON FUND MANAGEMENT PENSION FUND AUDIT 2002/03

• Pension Fund – Review of Management Arrangements (Annex 1); and
• Pension Fund Opinion Audit – Communication to those charged with Governance (Annex 2)

1. note the reports, and;
2. agree that a more detailed account of the performance of the fund managers be referred to in the Minutes where appropriate, with the assistance of members of the Committee and reporting officers; at the same time, however, having due regard to confidentiality.

87/03. PENSION FUND ANNUAL REPORT AND ACCOUNTS FOR 2002/03

(Agenda Item 20)

A draft of the Annual Report and Accounts was approved at the 29 August meeting. The Committee was asked to formally adopt the Pension Fund annual report and accounts. (The Report had been circulated separately to members and relevant officers).

RESOLVED: to adopt the Pension Fund annual report and accounts for 2002/03.

88/03. APPOINTMENT OF A NEW ACTUARY

(Agenda Item 21)

In April 2003 Watson Wyatt had informed the Council of their decision to withdraw from providing actuarial services to the local government sector by November 2003. The Committee had agreed at their May 2003 meeting to a process to select a new actuary, subject to consultation with the Chairman and Deputy Chair of the Committee, when appropriate. The Committee now had before them the report which gave details on the appointment process and on the successful applicant.

RESOLVED: to approve the appointment of Hewitt, Bacon and Woodrow as new actuaries to Oxfordshire County Council for a period of 5 years with immediate effect.

89/03. APPLICATION FOR ADMITTED BODY STATUS

(Agenda Item 23)

The Committee considered a request from a current administration body, London Museums Agency, to enter into a new admission agreement to the Local Government Pension Fund (PF23).

RESOLVED: to approve the application from the London Museums Agency subject to all parties agreeing to the terms of the Admission Agreement, and this Committee being informed when agreements had been signed.

90/03. ANNUAL FORUM

in the Chair

Date of signing 2004

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