Meeting documents

Pension Fund Committee
Friday, 23 May 2003

PF230503-11

Report of Head of Finance

Introduction

The Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 require the administering authority to monitor and review the performance of its investment managers and to take such action as necessary.

Investment managers are required to out-perform, by an agreed percentage, the Committee’s selected scheme specific benchmarks over three-year rolling periods. This performance measurement is used to monitor performance.

The Regulations require the administering authority to review the investments made by investment managers at least once every three months. In reviewing an investment manager’s decisions and investments the administering authority must take proper advice about the variety of the investments made and the suitability of those investments for the fund generally and as investments of their type. The administering authority must also periodically consider whether or not to retain the investment manager.

The administering authority is the County Council and the Pension Fund Committee has delegated powers to carry out the functions of the administering authority in relation to the Oxfordshire Pension Fund. In turn, the Head of Finance, has delegated powers covering ‘the making of investments of the County Pension Fund in accordance with policies determined by the Pension Fund Committee’.

From the 1 July 2003, the number of investment managers will increase from two to four. At the same time, the Committee will have a direct role in the asset allocation strategy that has hitherto been subjugated by the use of peer-group benchmarks.

Existing Arrangements

Investment managers report quarterly on their performance to the Pension Fund Committee in person. The officers and independent adviser assist the Committee with the monitoring of performance. The Committee is provided with charts and other information in order to achieve the objectives set out in paragraph 3 above. The agenda time allocated for this process is often insufficient for the existing two managers.

Alternative Options for Monitoring Performance

The Committee must first give consideration to whether it is necessary for the Committee to require investment managers to attend in person at every meeting. Attendance in person is not essential and the Committee’s duties as defined by the Regulations can be fulfilled with or without the managers being present.

The Committee should also consider the purpose of the managers being present at every meeting. Presentations under the existing arrangements can be repetitive and often concentrated on a limited part of the assets under management i.e. UK equities. Under the new arrangements there will be three investment managers with either an exclusive or very strong interest in UK equities so this factor is worth taking into account.

If the Committee wish to see each of the four investment managers in person at every meeting, the Committee will need to meet for longer periods of time. At present, one hour twenty minutes is scheduled for the two managers but this is rarely sufficient and the Committee usually over-runs the agenda time allocation. In order to ensure that the monitoring is effective for the number of managers involved a minimum of one hour would need to be set aside for each manager.

The four hours given to manager presentations would have to be supplemented with time for investment overviews and strategy considerations. In addition, a minimum of one hour would be required for dealing with all the other non-investment business. On this basis, up to six hours would be required for meeting(s) each quarter. The manager presentations could be given to the full Committee or they could be directed to an investment sub-committee or panel reporting to the full Committee. The Committee would need to consider whether all members needed to be present at such meetings. It is questionable whether the additional monitoring time necessary to see all managers every quarter is an effective use of member’s time.

There are various arrangements that could be put in place if it is accepted that investment managers do not have to attend every Committee. Three County Councils with multiple managers were contacted by telephone and all have arrangements that do not involve managers attending every committee. Essex has a flexible matrix of attendance requirements such that each of their managers attend at least one Committee meeting per year. Hampshire and Hertfordshire have similar arrangements based on a six-month Committee attendance cycle for the main managers and a twelve-month cycle for the smaller ones. In every case, attendance is supplemented by a requirement that managers meet with the officers to discuss performance and enable the officers and advisers to report to Committee on a quarterly basis.

Using the model outlined in the previous paragraph, it might be envisaged that the Committee’s four managers attend every other meeting in person on a rota basis. Alternatively, more flexibility could be introduced to facilitate the attendance of managers with a particular need to report in person or where their presence might add to discussion on strategic investment matters. In either case the attendance at Committee would be supplemented with visits to meet officers and advisers. These meetings could be open to interested Committee members but would be part of an informal process. The officers would report quarterly on the performance of all four managers in much the same way as present.

Conclusion

There are various arrangements that could be introduced to monitor the performance of investment managers in order to fulfil the administering authority’s responsibilities. The Committee’s view on attendance of managers in person at every meeting is key to the arrangements.

The officers take the view that attendance in person at every meeting is not necessary and therefore would have a preference for an arrangement similar to those set out in paragraph 12 above.

The new arrangements need to be in place for the November 2003 Committee meeting, which will be the meeting that reviews the new managers’ first quarter performance for 1 July to 30 September 2003. The officers could report back to the meeting on 29 August taking into account the views expressed at this Committee meeting. This would also allow time for the officers to take into consideration the views of the new investment managers. The August meeting would also be an appropriate time to consider any changes to the present reporting arrangements either to improve what is already provided or to reflect the new arrangements.

RECOMMENDATIONS

The Committee is RECOMMENDED to consider the future fund monitoring arrangements in the light of the appointment of the new investment managers and ask the officers to provide a further report on the new monitoring and reporting arrangement to the 29 August 2003 meeting.

CHRIS GRAY
Head of Finance

Background Papers: Nil

Contact Officer: Barry Phillips Tel. (01865) 810805