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ITEM PF3

PENSION FUND COMMITTEE – 29 AUGUST 2003

Minutes of the Meeting commencing at 10.00 am and finishing at 12.50 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 the following additional documents:

- Chart 4 – Agenda Item 9E

and decided as set out below. Except insofar as otherwise specified, the reasons for the decisions are contained in the agenda, reports, schedule and additional document, copies of which are attached to the signed Minutes.

48/03. APOLOGIES FOR ABSENCE AND TEMPORARY APPOINTMENTS

Apologies for absence and temporary appointments were received as follows:

Apology from	Temporary Appointments
Councillor Farrell	-
District Councillor Fooks	N/A

49/03. MINUTES

The Minutes of the meeting of the Committee held on 23 May 2003 were approved and signed.

50/03. OVERVIEW OF PAST AND CURRENT INVESTMENT POSITION

(Agenda Item 5)

The transition exercise had taken place during the quarter ended 30 June. Deutsche Asset Management Ltd and Schroder Investment Management had ceased to manage the assets at the close of business 12 June 2003 and Legal & General, the transition manager, took over the management arrangements on 13 June, and had continued to manage them until the end of the quarter. The new managers had taken over from 11 July 2003.

The Financial Adviser reviewed the investment activity and presented an overview of the total composition of the Fund as at 30 June. This report was supported by the appropriate charts of economic and market trends. He also reported on the transactions carried out by Deutsche Asset Management Ltd and Schroder Investment Management until 12 June and the performance return at the total fund level and for the individual assets.

RESOLVED: to receive the report.

51/03. PRESENTATION BY HERMES ON CORPORATE GOVERNANCE AND ACTIVISM

(Agenda Item 6)

As had been requested by the Pension Fund Manager (Appointments) Sub-Committee, representatives from Hermes Focus Asset Management Ltd gave a presentation that explained their proactive approach on Corporate Governance. The Pension Fund’s Statement of Investment Principles had highlighted activism as one of the CIPFA ‘Principles for Investment Decision – Making in the Local Government Pension Scheme in the UK’ and it was one that the Oxfordshire Pension Fund did not currently carry out.

RESOLVED: to:

1. thank the representatives from Hermes for their presentation; and
2. request the officers to report to the 21 November 2003 meeting with any issues that had arisen from the presentation, including advice about whether the Committee should be taking any further action to comply with guidance emanating from the Myners Review on shareholder activism/engagement.
   
   

52/03. PERFORMANCE OF PENSION FUND

• general statistical and review information giving details of the main investment markets and performance statistics for all funds measured by CAPS; and
• individual information comparing the investment performance of the County Council’s Pension Fund as a whole against its customised benchmark.

53/03. EXEMPT ITEMS

RESOLVED: that the public be excluded during the consideration of items 8E-10E 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

54/03. CAPS REPORTS FOR EACH FUND MANAGER

1. Schroder

Mr Brackett of Combined Actuarial Performance Services Ltd (CAPS) presented a detailed analysis of the investment performance for 2002 of the Schroder Pension Fund portfolio.

2. Deutsche Asset Management

55/03. OVERVIEW AND OUTLOOK FOR INVESTMENT MARKETS

(Agenda Item 9E)

The Independent Financial Adviser reported orally, giving an overview of the current and future investment scene and market development across various regions and sectors. His oral report and the report PF9E, which was not exempt, was supported by relevant charts of economic and market trends, where appropriate, and these were attached. (Chart 4 on investment performance was circulated at the meeting).

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

56/03. INVESTMENT ACTIVITY

(Agenda Item 10E)

The Independent Financial Adviser reported orally on the investment activity of Schroder Investment Management and Deutsche Asset Management Ltd up until the termination date of 12 June 2003.

RESOLVED: to receive the report.

ITEMS FOLLOWING THE RE-ADMISSION OF THE PRESS AND PUBLIC

57/03. HEDGE FUNDS

(Agenda Item 11)

Following the Pension Fund’s asset liability study that had been carried out in early 2002, the Actuary recommended a 2% investment in hedge funds. However, a decision on this was deferred pending further research and information. The Committee now had before them a report (PF11) that explained hedge funds and gave a view on whether or not the Pension Fund should have a small exposure to this asset class. It was recommended that the report should be considered in conjunction with the paper ‘Hedge Funds Made Simple’, published in 2001 by the National Association of Pension Funds, a copy of which was attached at Annex 1.

RESOLVED (by 5 votes to 0) that:

1. 2% of the Pension Fund’s assets be invested in hedge funds in line with the customised benchmark;
2. this investment be made through two or three funds of hedge funds;
3. the officers, in consultation with the Independent Financial Adviser, be authorised to select the funds of funds, make the investment and report action taken to the 21 November 2003 meeting; and;
4. UBS Wealth Management be retained to advise and act on behalf of the Pension Fund.
   
   58/03. DERIVATIVES – FUTURES, OPTIONS AND SWAPS

(Agenda Item 12)

The Committee had before them a report (PF12) which described the investment uses of 3 forms of derivatives, "futures", "options" and "swaps" and how our Fund Managers had proposed to use them.

RESOLVED: (nem con) to:

1. endorse the action taken by the officers, following consultation with the Chairman/Deputy Chair and Third Group Spokesperson, to allow Alliance Bernstein’s and Legal and General’s use of derivatives as set out in 12 (a) and (b) of the report PF12; and
2. authorise UBS Global Asset Management and Baillie Gifford to use derivatives as set out in 12 (c) and (d) of the report.
   
   59/03. TRANSFER OF ASSETS TO NEW MANAGERS

1. note the issues set out in the letter to the Chairman, Deputy Chair and Third Group Spokesperson (Annex 1 to the report PF13); and
2. agree the benchmark, target and investment range for private equity as set out at paragraph 14 of the report; and
3. thank and congratulate Mr Wheeler and Mr Bushell for achieving such a smooth transfer and at such an efficient cost.

49/03. DRAFT ANNUAL REPORT AND ACCOUNTS 2002/03

(Agenda Item 14)

The Committee had before them the draft Annual Report and Accounts (PF14) that gave the full Pension Fund accounts for the year ended 31 March 2003 and which provided details on the operation of the Pension Fund, including sections on membership and investments. The report also incorporated a revised Statement of Investment Principles, which had been updated in the light of the major management restructuring exercise.

RESOLVED: to approve the draft annual report, subject to the minor changes made at Committee and to agree the revised Statement of Investment Principles.

50/03. FUTURE INVESTMENT MANAGER MONITORING ARRANGEMENTS

(Agenda Item 15)

At the last meeting, on 23 May 2003 it had been agreed that all members should be involved in the monitoring process. In addition, that managers would be invited to Committee meetings on a rotational basis, subject to the proviso that they may be asked to attend additional meetings when there was a cause for concern or if there was a change in personnel.

At that meeting, officers were asked to prepare a further report (PF15) setting out the new arrangements.

RESOLVED: to agree the programme of manager meetings as set out in the report PF15.

51/03. SOCIALLY RESPONSIBLE INVESTMENT AND CORPORATE GOVERNANCE ISSUES

• Revised Combined Code of Corporate Governance
• Expansion of the NAPF Voting Service
• The Oxfordshire Pension Fund’s Current Voting Policy

52/03. ODPM DISCUSSION PAPER – PROPOSALS FOR A FUNDING STRATEGY STATEMENT

(Agenda Item 17)

In May 2002 the Office of the Deputy Prime Minister (ODPM) published the initial findings of the Stocktake exercise of the Local Government Pension Scheme. To progress this exercise into a second phase, the ODPM reported that it would issue a series of discussion papers on key areas, which would demand further analysis and consultation.

To date, two discussion papers had been circulated. The first sought responses on how a more flexible benefit package, particularly for new employees, might be developed. The second examined the scope for further simplification of the Scheme’s legal framework. Both these papers had previously been presented to the Committee for comment. Responses to both these papers were in the process of being analysed by ODPM.

The Committee now had before them a third discussion paper, which proposed to introduce a LGPS regulation requiring administering authorities to prepare a funding strategy statement, which would identify the approach being taken to meet their scheme’s pension liabilities going forward.

RESOLVED: to endorse the officers’ comments as set out in paragraphs 8 to 12 of the report PF17 and to instruct the officers to submit the response to the Office of the Deputy Prime Minister before the consultation deadline.

53/03. ANNUAL FORUM

(Agenda Item 18)

The Committee discussed arrangements for the next Annual Forum.

It was AGREED that:

1. the Annual Forum would take place on Monday 1 December 2003 commencing at 10.00 am; and
2. the new Actuary, who was due to take up appointment from 1 November 2003, should be asked to give a presentation on the impact of investment performance over the last 3 years.
   
   
   

54/03. ADMITTED BODY STATUS - AMENDMENT OF ADMISSION AGREEMENT WITH ORDER OF ST JOHN CARE TRUST

in the Chair

Date of signing 2003

* 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. In the case of the Investment Managers’ reports 10E, these will remain private until after 30 November 2003.

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