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ITEM PF3

PENSION FUND COMMITTEE – 21 MAY 2004

Minutes of the Meeting commencing at 10.00 am and finishing at 1.01 pm

Present:

The Committee considered the matters, reports and recommendations contained or referred to in the agenda for the meeting, together with the latest newsletter of the Local Authorities Pension Fund Forum and the presentation report by Legal and General (information exempt), and decided as set out below. Except insofar as otherwise specified, the reasons for the decisions are contained in the agenda, reports and additional documents, copies of which are attached to the signed Minutes.

19/04. ELECTION TO CHAIR FOR THE CURRENT COUNCIL YEAR

RESOLVED: that Councillor Shouler be elected as Chairman to the Committee for the current Council Year.

20/04. ELECTION TO DEPUTY CHAIR FOR THE CURRENT COUNCIL YEAR

RESOLVED:

1. that Councillor Farrell be elected as Deputy Chair to the Committee for the current Council Year;
2. to note that Councillor Harris had been nominated as the Third Group Spokesperson of the Committee;
3. to note that the Chairman, Deputy Chair and Third Group Spokesperson of the Committee were the members of the Pension Benefits Sub-Committee.
   
   

21/04. DECLARATIONS OF INTEREST

Councillor Moley declared a personal interest by virtue of being a member of the Pension Scheme.

22/04. MINUTES

The Minutes of the meeting of the Committee held on 20 February 2004 were approved and signed.

On minute 12/04, Mr Collins reported that outstanding contributions from an admitted body had been paid.

On minute 13/04, Mr Wheeler reported that, as there were limits on the level of investment that could be made in the Martello Fund in a given period, of the £1.3m to be invested, £615,000 had been invested in the Fund in May and the balance was expected to be invested in the Fund within the next few months.

23/04. PRESENTATION BY THE LOCAL AUTHORITY PENSION FUND FORUM

(Agenda Item 7)

In November 2003, the Committee received a report on Corporate Governance and Shareholder Activism. The report referred to the existence of the Local Authority Pension Fund Forum (LAPFF). Mr Bray from the LAPFF gave a presentation to the Committee on examples of the type of issues the Forum dealt with, its existing membership and its fees. The Committee considered a paper (PF7) from LAPFF entitled "Benefits of LAPFF membership" and the latest newsletter from the Forum (May 2004) which was circulated at the meeting, copy of which is appended to the signed copy of the minutes.

RESOLVED: to agree not to become a member of the Local Authority Pension Fund Forum.

24/04. ORDER OF BUSINESS

RESOLVED: that agenda item 13E should be considered after agenda item 10E(a) so that the Committee could consider together all the exempt reports which did not involve the presence of Fund Managers.

25/04. OVERVIEW OF PAST AND CURRENT INVESTMENT POSITION

(Agenda Item 8)

The Independent Financial Adviser reviewed the investment activity during the past quarter and presented an overview of the Fund’s position as at 31 March 2004.

RESOLVED: to receive the tables and that the information contained in them be borne in mind insofar as they relate to items 10E(b) to 12E on the agenda.

26/04. EXEMPT ITEMS

RESOLVED: that the public be excluded during the consideration of items 9E-14E in the Agenda since it was likely that if they were present during those items there would be a disclosure of "exempt" information as described in Part I of Schedule 12A to the Local Government Act, 1972 and specified below each item in the Agenda, i.e. information relating to the financial or business affairs of any particular person (other than the authority).

PROCEEDINGS FOLLOWING THE WITHDRAWAL OF PRESS AND PUBLIC

27/04. OVERVIEW AND OUTLOOK FOR INVESTMENT MARKETS

(Agenda Item 9E)

The Independent Financial Adviser reported orally giving an overview of the current and future investment scene and market developments across various regions and sectors. His oral report and the report (PF9E) were supported by relevant tables of economic and market trends, where appropriate.

RESOLVED:

(a) to receive the Independent Financial Adviser’s report, oral report and tables subject to:

(1) in paragraph 1, correcting the heading in the table so that "Consensus Forecasts" applied only to the columns for "2004" and "2005";

(2) in paragraph 3, line 6 correcting "4³/₄%" to read "4¹/₄%";

(b) to bear the Independent Financial Adviser’s conclusions in mind when considering the Fund Managers’ reports.

28/04. CHANGE OF PROPERTY BENCHMARK

(Agenda Item 10E(a))

During the quarter, UBS Global Asset Management wrote to the officers recommending a change in the property benchmark due to technical reasons. The Independent Financial Adviser was consulted on the issue and a new benchmark was agreed. The report (PF10E(a)) explained the background to the decision.

RESOLVED: to note the report and to endorse the action taken by the officers.

29/04. SOCIALLY RESPONSIBLE INVESTMENT AND CORPORATE GOVERNANCE ISSUES

(Agenda Item 13E)

The Committee was advised that the Pension Fund’s managers were instructed to vote in accordance with the National Association of Pension Funds’ (NAPF) voting guidelines unless there were exceptional circumstances which, in the managers’ judgement, would not be in the Fund’s best interests. Where managers took a contrary view to the NAPF, they had to obtain permission from the officers to vote differently. During the quarter, Baillie Gifford obtained permission from the officers to vote differently from the NAPF guidelines and to oppose a resolution at an Extraordinary General Meeting of one of the companies in which the Pension Fund had an investment. The Committee considered the report (PF13E) which provided the background to the decision.

RESOLVED: to note the report and to endorse the action taken by the officers.

30/04. UBS ASSET MANAGEMENT

(Agenda Item 10E(b))

Mr Barker and Mr Dennis-Jones reported on the performance and strategy of the UBS multi-asset portfolio for the quarter that ended on 31 March 2004 with reference to the presentation report which had been circulated separately with the papers for the agenda.

Messrs Barker and Dennis-Jones responded to members’ questions about the underperformance in certain sectors of the portfolio.

RESOLVED: to receive the UBS Asset Management’s quarterly valuation and presentation reports for the period ending 31 March 2004.

31/04. LEGAL AND GENERAL

(Agenda Item 11E)

Mr Barnard-Smith and Ms Cawley reported on the performance and strategy of the Legal & General Investment Management portfolio for the quarter that ended on 31 March 2004. They referred to the presentation report. Mr Barnard-Smith responded to members’ questions about the performance of the portfolio.

RESOLVED: to receive Legal & General’s quarterly valuation and presentation reports for the period ending 31 March 2004.

32/04. REPORT OF MAIN ISSUES ARISING FROM PRESENTATIONS GIVEN BY FUND MANAGERS NOT REPRESENTED AT THE MEETING

(Agenda Item 12E)

The Independent Financial Adviser and officers received presentations from Baillie Gifford and Alliance Bernstein for the quarter ending 31 March 2004 at County Hall. The Independent Financial Adviser reported orally on the main issues arising from the presentations in conjunction with information contained in the Tables (Agenda item 8) and the managers’ quarterly valuation reports.

Mr Bushell reported that Alliance Bernstein’s price earning ratio of shares was 13.5 compared with the market average of 17. Alliance Bernstein was also continuing to hedge the US dollar. He also reported that Baillie Gifford’s performance, since inception, was 11.3% compared with the benchmark set of 10%. Baillie Gifford’s trading activity during the last quarter had been low. Both investment houses were on track to meet their benchmarks.

RESOLVED: to note the main issues arising from the presentations.

33/04. SUMMARY BY THE INDEPENDENT FINANCIAL ADVISER

(Agenda Item 14E)

The Independent Financial Adviser said that he had nothing further to add to the comments he had already made in the meeting.

RESOLVED: to ask the Independent Financial Adviser to include more information on the Chinese economy in his next report on the review and outcome for investment markets.

ITEMS FOLLOWING THE RE-ADMISSION OF THE PRESS AND PUBLIC

34/04. STRATEGIC ASSET ALLOCATION AND THE TRANSFER OF £10 MILLION OF SURPLUS CASH TO UBS GLOBAL ASSET MANAGEMENT

(Agenda Item 15)

The Committee considered the report (PF15) which described the Pension Fund’s current asset allocation arrangements i.e. the percentage weightings it had in bonds, equities, property etc. Under the Fund’s previous management arrangements, decisions on asset allocation rested primarily with Schroders and Deutsche Asset Management but, under the new structure, it was the responsibility of the Pension Fund Committee. On 1 April 2004, £10 million of surplus cash was transferred to UBS Global Asset Management and the report explained why this was the favoured option.

RESOLVED: to note the report, endorse the action taken by officers in transferring £10 million of surplus cash to UBS Global Asset Management and to ask the officers to report annually to the February meeting of the Committee on the asset allocation and whether any changes needed to be made to it.

35/04. FUNDING STRATEGY STATEMENT

(Agenda Item 16)

The Committee was advised that the Office of the Deputy Prime Minister had published Regulations that required local authority pension schemes to have a Funding Strategy Statement (FSS) in place by 31 March 2005. The Committee considered the report (PF16) which listed the main items that should be included in a FSS, explained the issues associated in drawing it up, highlighted the need to consult the other employing bodies within the Oxfordshire Pension Fund and set out a proposed timetable.

RESOLVED: to

1. note the report; and
2. endorse the timetable set out in paragraph 18 of the report, subject to:
   
   

(1) in bullet point 1 adding the word "elected" before the word "member";

(2) the invitation to the workshop in July being sent jointly from the Chairman of the Committee and the Assistant Head of Finance to all employers.

36/04. LOCAL GOVERNMENT PENSION SCHEME REGULATIONS

1. note the report;
2. approve delegation to officers for applying extension of time limits for aggregating membership;
3. adopt the resolution for use of discretionary powers under Regulation 52;
4. adopt the recommendations for the new Internal Dispute Resolution Procedure processes and to agree that the current ‘appointed person’ be appointed to determine the second stage disputes; and
5. note the contents of the draft Regulations and to agree not to make any comment on the proposals to the Office of the Deputy Prime Minister.

37/04. STAFFING

1. approve the replacement of the Pensions Administration Manager on a full-time basis;
2. approve the recruitment of an additional team member to strengthen the Technical Team; and
3. approve the increased budget for overtime working in order to clear backlogs of work.

38/04. ADMITTED BODIES

(Agenda Item 19)

The Committee was advised as follows:

Charter Community Housing - The admission agreement was effective from 26 March 2004.

ALM London - A new agreement had been signed on 6 April 2004 following the change of name from London Museums Agency.

Norcap - Following Committee approval last year, the agreement had been signed.

RESOLVED: to note the report.

39/04. ANNUAL FORUM

in the Chair

Date of signing 2004

* The reports relating to the exempt items have not been made public and should be regarded as strictly private to those members and officers entitled to receive them with the exception that the reports for exempt items 10E(b), 11E and 12E should be regarded as strictly private to members and officers entitled to receive them until after 21 August 2004.

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