ITEM PF18 PENSION FUND COMMITTEE – 23 FEBRUARY 2007CIPFA LOCAL AUTHORITY PENSION FUND INVESTMENT STATISTICS Report by the Head of Finance & ProcurementBackground1. WM Performance Services, who were appointed as Oxfordshire’s investment measurement service provider on 1 April 2005, are responsible for compiling the CIPFA statistics for Local Authority Pension Funds. In 2005/06 88 local authority pension funds, with an aggregate value of over £111 billion, were included within this service. 2.
The statistics cover investment
returns for the 3, 5 and 10-year periods ended 31 March 2006. The statistics
also cover asset distribution, showing the percentage weighting of funds
in each major asset class e.g. UK equities, Overseas equities, property
etc. Summary of Results3. Annex 1, Table 1 compares the Oxfordshire Pension Fund asset distribution at 31 March 2006 with other local authority pension funds, private sector funds and Oxfordshire’s own strategic benchmark. 4. Oxfordshire’s asset allocation was broadly in line with other local authorities, though there were a few differences. Oxfordshire had a lower weighting in UK Equities (34% versus 39%) and a zero weighting in overseas bonds compared to an average weighting of 3%. However, the largest difference was in cash and other investments, where Oxfordshire held 14% compared to an average of just 5%. Other investments include private equity, hedge funds and tactical asset allocation funds, where the Oxfordshire Pension Fund has a high exposure relative to other local authorities. 5. Another feature worth noting in Table 1 is the difference in asset allocation between local authority and private sector funds. This shows that local authorities have a higher exposure to UK equities but a lower exposure to index linked bonds compared to private sector funds. The need for companies to report their pension fund deficits in their balance sheets means they are obliged to take no more than a five to ten year view on their pension fund investments, which tends to drive them to a higher bond weighting. Furthermore, the large closure of final salary pension schemes in the private sector and the associated increase in their maturity profiles also lends support to a higher bond weighting to match their liabilities, whereas local authority pension schemes are less mature and able to take a longer term view on their investments. 6. Annex 1, Table 2 compares the Oxfordshire Pension Fund’s investment performance for 3, 5 and 10-year periods with the 88 local authority pension funds measured. The table also compares the investment returns against the retail price index and average earnings. 7. Annex 1, Table 3 provides the actuarial assumptions made at the 31 March 2004 valuation, which apply to the three-year period ending 31 March 2007. The assumptions provide both three yearly and longer-term investment return assumptions. The investment returns over the three year period show that the actuarial assumptions have comfortably been achieved. However, some of the investment returns achieved since the last actuarial valuation could be reversed if markets suffer a downturn between now and the next valuation at 31 March 2007. It should also be remembered that this report only considers the performance of the Pension Fund’s investment assets, which are only one side of the actuarial balance sheet. There is a high expectation that the value of liabilities will also increase, mainly due to rapidly improving mortality rates, which will offset some if not all of the large increase in the value of assets. 8. Annexes 2 to 4 compare in more detail the investment performance of the Oxfordshire Pension Fund with other English County Councils for the 3, 5 and 10 year periods. The 5 and 10 year periods are still suffering from the impact of the poor performance of the Fund for the two year period ended 31 March 2003, which prompted the major management changes made in July 2003. However, the Oxfordshire Fund has moved up the three year league table over the last two years, vindicating the changes made in 2003. The Fund’s investment performance over the last two years has been particularly strong and for the twelve month period ended 31 March 2005 it was the best performing local authority pension fund. RECOMMENDATION9. The Committee is RECOMMENDED to receive this report. SUE SCANE Background papers: CIPFA Local Authority Pension Fund Investment Statistics 1996-2006. Actuarial Valuation Report 31 March 2004. Contact officer: Tony Wheeler, Pension Fund Investments Manager Tel: (01865) 815287 February 2007
|