ITEM PF12
PENSION
FUND COMMITTEE – 24 MAY 2002
THE MYNERS
REVIEW ON INSTITUTIONAL INVESTMENT IN THE UNITED KINGDOM
Report by
Director for Business Support & County Treasurer
Background
- The Review on
Institutional Investment in the UK, better known as the Myners Review,
concluded with a set of Principles that pension scheme trustees were
recommended to use when looking at their investment policy. The review
suggests that the application of these ten Principles will enhance the
quality of trustees’ decision making.
- The Government’s
response to this review is that they would be applied to the Local Government
Pension Scheme by means of a combination of amendments to the Local
Government Pension Scheme Regulations and authoritative guidance developed
by CIPFA.
- We have now received
detailed guidance notes from CIPFA, and these have already been circulated
to members. The following report considers the ten principles and assesses
how closely the Oxfordshire Pension Fund complies with these.
- At the time this
report went to print we were still awaiting amending regulations from
the DTLR. The amending regulation will require administering authorities
to publish details of the extent to which they already comply with the
ten principles, and to give justification where this is not the case.
Furthermore, the new regulation will require authorities to publish
these details within 3 months of the regulation coming into force.
Assessment of current
compliance with the Principles
- Annex
1 provides a compliance checklist, which has been
extracted from pages 4 and 5 of the CIPFA Guidance. We have graded how
the Oxfordshire Pension Fund fares, against each checkpoint, under three
different headings i.e. fully complied with, partially complied with
and not complied with at all.
- On the whole the
first principle, "effective decision taking", is being achieved.
Officers are exploring various options on member training. Four members
have been booked places to attend the forthcoming LGC Members’ Role
in Pensions Seminar and we have written to the NAPF (National Association
of Pension Funds) expressing an interest in attending their local government
member training courses, which they intend holding during the summer.
We will also consider the possibility of in-house training.
- It is recommended
by Myners that an annual business plan is drawn up for a pension fund
and that this should not only contain financial estimates for the investment
and administration of the fund, but should also include appropriate
provision for training. At the moment we produce an annual budget for
investment and administration expenses but we have no formal training
programme. We recommend drawing up an annual business plan, which will
probably go to the February meeting each year.
- All the issues
under the second and third principles "Clear Objectives" and
"Focus on asset allocation" have recently been considered
and are now being addressed as a result of the asset liability exercise.
- Oxfordshire is
mostly achieving principle four on "Expert advice", though
there are areas that could be improved upon. The Oxfordshire Fund has
its own Independent Financial Adviser and has recently ensured that
advice on investment issues is not confined to its Actuary. However,
the principles recommend that a separate contract should be in place
for the Actuary, which is not the position at the moment. We would recommend
that the Fund’s actuarial arrangements are reviewed and that we should
formally go out to tender in the summer of 2003.
- Principle five
"Explicit mandates". Myners recommends that in future mandates
should be more "instructional" in their content "covering
the objective, asset allocation, benchmark flexibility, risk parameters,
performance targets and measurement timescales". It is also recommended
that contracts should specify the types of investments that the local
government pension regulations allow.
- Although the managers
currently operate under detailed management agreements not all of the
issues described in paragraph 10 above are included in the mandates.
We intend to address this issue over the next twelve months, in the
light of the management structure review.
- Regarding soft
commissions we have not stated the reasons why these are permitted.
However, Schroders stopped the practice of using soft commissions from
1 January 2002 and Deutsche are in the process of phasing these out.
- Principle 6 covers
the subject of Activism. This is not solely concerned with a pension
fund’s voting arrangements but also that its managers are being proactive
in their dealings with company managements. Myners recommends "trustees
should ensure that managers have an explicit strategy, elucidating the
circumstances in which they intervene in a company, the approach they
will use in doing so, and how they measure the effectiveness of this
strategy." There is currently a lot of discussion on this issue
and we anticipate that there will be further clarification on this.
- All the issues
under Principle seven "Appropriate benchmarks " have either
been or are being addressed.
- Principle eight
concerns "Performance measurement". Regarding investment performance
the Oxfordshire Fund subscribes to both CAPS and the WM Local Authority
investment measurement services. Detailed performance figures and charts
for three month to five-year periods are considered at quarterly meetings.
CAPS also provide an annual report on investment performance, which
provides a detailed analysis on stock selection skills, asset allocation,
market timing, investment turnover and activity, and comparisons of
Oxfordshire’s portfolio manager with their House performance.
- A formal review
of management arrangements is made during each county council election
cycle and we are currently undertaking an extensive investment management
review.
- Principle nine
also discusses the desirability of assessing consultants, which we do
not currently do on a formal basis. As previously mentioned in paragraph
9 we are recommending that we carry out a formal tender process for
actuarial services in the summer of 2003.
- Principle nine
addresses the question of "transparency". CIPFA is currently
drawing up a revised guidance on what should be included in a pension
fund’s SIP (Statement of Investment Principles). The new guidance, to
be published sometime this year, is expected to pick up all the issues
discussed under principle nine. We intend waiting for the new guidelines
before proceeding on this issue.
- Principle ten
considers "regular reporting". Emphasis is placed on the importance
of the SIP and its availability to pension scheme members. The Oxfordshire
annual report and accounts, which is available to all members within
the pension scheme, includes the SIP. We are also currently investigating
setting up a pensions page on the Council’s website, which will enable
us to include the SIP, any updates or other topical issues.
Conclusion
- Overall the Oxfordshire
Pension Fund appears to be complying with the ten principles, with a
few minor exceptions. The recent asset liability study and the forthcoming
management structure review addresses many of the issues laid down in
the principles. We recommend the drawing up of an annual business plan,
which would encompass member-training needs. We also recognise the need
for the Pension Fund to tender for its actuarial services, which we
intend to do sometime during the next eighteen months.
- Before updating
the Fund’s SIP (Statement of Investment Principles) we will await the
revised guidelines currently being drawn up by the CIPFA Pensions Panel.
We are also awaiting amending regulations from the DTLR, which should
be published anytime now.
RECOMMENDATIONS
- The Committee
are RECOMMENDED:
- to
ask Officers to draw up an annual business plan, which should
contain financial estimates for the investment and administration
of the Pension Fund and appropriate provision for member training;
- to
ask officers to carry out a formal tender process for the Fund’s
actuarial services in the summer of 2003.
CHRIS
GRAY
Director for
Business Support & County Treasurer
Background Papers: CIPFA Guidance – Principles for Investment Decision
Making in the Local Government Pension Scheme in the United Kingdom.
Contact
Officer: Tony Wheeler, Loans and Investments Manager. Tel:
(01865) 815287
May 2002
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