Meeting documents

Pension Fund Committee
Friday, 26 November 2004

PF261104-13

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ITEM PF13

PENSION FUND COMMITTEE – 26 NOVEMBER 2004

CIPFA LOCAL AUTHORITY PENSION FUND INVESTMENT STATISTICS

Report by the Head of Finance & Procurement

Background

  1. The WM Company, which is an investment measurement service provider, had until March 2002 compiled the CIPFA statistics for Local Authority Pension Funds. This service had been provided at no cost but from 1 April 2002 the WM Company charged for this and as a consequence the number of measured funds has fallen to 86 from a possible universe of 103. The total market value of the funds measured was £78.3 billion at 31 March 2004.

  2. The Oxfordshire Pension Fund is one of the 17 local authority pension funds that do not use the WM Service because it already subscribes to the Russell Mellon CAPS measurement service, which is owned by the Fund’s custodian ABN AMRO Mellon. However, the Oxfordshire Fund is still able to compare its investment performance against the reduced WM Company’s local authority universe and this report summarises the main points of interest.

  3. The statistics cover investment returns for the 3, 5 and 10-year periods ended 31 March 2004. The statistics also cover asset distribution, showing the percentage weighting of funds in each major asset class e.g. UK equities, Overseas equities.

    4. Summary of Results

  4. Annex 1, (download as .doc file) Table 1 compares the Oxfordshire Pension Fund asset distribution with other local authority pension funds and Oxfordshire’s new customised benchmark, which was agreed by the Pension Fund Committee following the asset liability study carried out in 2002. The asset distribution of the Oxfordshire Pension Fund was broadly similar to the WM Local Authority average universe at 31 March 2004.

  5. Annex 1,(download as .doc file Table 2 compares the Oxfordshire Pension Fund’s investment performance for 3, 5 and 10 year periods with the 86 local authority pension funds measured. The table also compares investment returns with the retail price index and average earnings.

  6. Annex 1, (download as .doc file Table 3 provides the actuarial assumptions made at the 31 March 2001 valuation, which applied to the three-year period ended 31 March 2004. When the Actuary set his assumptions these were based on a very long-term time horizon, but nevertheless it is interesting to note that the actual 3-year investment returns (Oxfordshire –2.2% and the local authority average of –0.3%) fell well short of the Actuary’s longer term forecasts of 7.25% for equities and 4.9% for Government Bonds. As a consequence of the poor investment returns, over this three year period, all local authority pension funds are expected to have deteriorating funding positions, when the results of 31 March 2004 valuation results are announced over the next few months.

  7. Annexes 2, 3 and 4 (download as .xls file) compare in more detail the investment performance of the Oxfordshire Fund with other English County Councils for the 3, 5 and 10 year periods. The figures show that the Oxfordshire Fund’s investment performance was below the average of other County Councils for all three periods. However, unusually there was a very narrow dispersion in the three-year returns with only a 3.7% difference between the top and bottom performing county council funds, compared to 7.1% the year before. It should be noted that Bedfordshire, Berkshire, Cheshire, Cornwall, Durham, Essex, Hampshire, Nottinghamshire and Shropshire are not included in the above data.

  8. It was the Oxfordshire Pension Fund’s poor investment performance in 2001/02 that prompted the Pension Fund Committee to carry out an asset liability study in the spring of 2002 and then a comprehensive review of the Fund’s management arrangements, which culminated in a major management restructuring. The main outcome of the review was the appointment of four new fund managers in July 2003. The Audit Commission carried out a comprehensive review of the Oxfordshire Pension Fund’s management arrangements in 2002/03 and praised the Council for "acting with commendable speed in revising their whole Pension Fund management arrangements" and concluded that "in summary, despite the poor performance, the Pension Fund is well managed".

  9. The new management structure has settled down very well and the latest performance figures are extremely encouraging. Over the latest twelve-month period, to 30 September 2004, the Oxfordshire Pension Fund’s aggregate performance was 12.4%, which places it as fourth best out of the sixty one local authority pension funds so far measured by the WM Company. Furthermore, the latest quarterly data shows that all four managers are beating their respective benchmarks, which bodes well going forward.

    10. RECOMMENDATION

  10. The Committee is RECOMMENDED to receive this report.

SUE SCANE
Head of Finance & Procurement

Background papers: CIPFA Local Authority Pension Fund Investment Statistics 1994-2004. Actuarial Valuation Report 31 March 2001.

Contact officer: Tony Wheeler, Pension Fund Investments Manager Tel: (01865) 815287

November 2004

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