ITEM PF17
PENSION FUND COMMITTEE – 25 FEBRUARY 2009
CIPFA LOCAL AUTHORITY PENSION FUND INVESTMENT STATISTICS
Report by Assistant Chief Executive & Chief Finance Officer
Background
1. 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 2007/08 87 local authority pension funds, with a total market value of £123 billion, were included within this service.
2. The statistics cover investment returns for the 3, 5 and 10-year periods ended 31 March 2008. 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 Results
3. Annex 1 (download as .doc file), Table 1 compares the Oxfordshire Pension Fund asset distribution at 31 March 2008 with other local authority pension funds, private sector funds and Oxfordshire’s own strategic benchmark.
4. Oxfordshire’s benchmark asset allocation is broadly in line with other local authorities, particularly as since March the benchmark allocation to Overseas Bonds has been set at 2%. Oxfordshire has a higher weighting in cash and other investments (20% versus 9%). 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. The weighting of 20% as at March is above the 11% benchmark reflecting the Fund’s high cash holding. This was partly as a consequence of the transition between fund managers effective from 1 April, when unwanted assets were liquidated and the proceeds reinvested in early April.
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 87 local authority pension funds measured. The table also compares the investment returns against the retail price index and average earnings. Oxfordshire’s performance has been below the average for each of the three periods. In recent years this is in part a consequence of poor stock selection by managers.
7. Annex 1, Table 3 provides the actuarial assumptions made at 31 March 2007 valuation, which apply to the three-year period ending 31 March 2010. The assumptions provide both three yearly and longer-term investment return assumptions. The 10 year investment return is below that assumed by the actuary which is one of the reasons why employer contributions have increased over the last three valuations. It should be remembered that this report only considers the performance of the Pension Fund’s investment assets, which are only one side of the actuarial equation.
8. Annexes 2 to 4 (download as .xls file) 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 league position in each of the last three years is shown in each league table. In last year’s report we were hopeful that if our improvement in investment performance continued we could move up the five and ten year league table. Unfortunately the three year performance has worsened and having moved from 15th to 6th we have now dropped back to 23rd. As a consequence we have not been able to improve our position in the longer periods. Having said that, performance is not significantly below the average, particularly in the five year period.
RECOMMENDATION
9. The Committee is RECOMMENDED to receive this report.
SUE SCANE Assistant Chief Executive & Chief Finance Officer
Background papers{ CIPFA Local Authority Pension Fund Investment Statistics 1998-2008. Actuarial Valuation Report 31 March 2007.
Contact officer: Paul Gerrish, Head of Finance & Procurement Tel: (01865) 323969
February 2009
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