Meeting documents

Pension Fund Committee
Friday, 30 August 2002

PF300802-14

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ITEM PF14

PENSION FUND COMMITTEE – 30 AUGUST 2002

BENCHMARK – ASSET ALLOCATION AND INDICES

Report by Independent Financial Adviser

  1. Officers and the independent financial adviser met representatives of Deutsche Asset Management (Mark Burgess and Charles Ekins) and Schroder Investment Management (Lyndon Boulton and Diane Knowles) on 26 June to discuss the detailed asset allocation within the new customised benchmark for the Oxfordshire Pension Fund, together with transition arrangements to the new asset allocations, permitted ranges around asset targets and benchmark indices for individual asset categories. It was agreed to recommend the following targets, ranges and benchmark indices for adoption by the Committee.

  2. (a) Total assets

    3. During the transition period to 31 March 2003 the benchmark against which performance would be judged should be a combination of the CAPS median and Oxfordshire’s customised benchmark.

    (b) Asset allocations within overseas equities

    It was considered inappropriate to sub-divide overseas equities on the basis of market capitalisations as this would lead to distortions viz the USA would currently be over represented, as Japan would have been in 1990. It is therefore recommended that the new benchmark target of 27% total assets be arbitrarily divided equally between the three principal geographic areas, which translates into North America 9%, Europe 9% and Pacific region 9%.

    (c) Ranges around the benchmarks and benchmarks for individual asset categories

    In order to be able to exercise discretion, the managers will need to be allowed to operate within a range either side of the target asset allocations within the customised benchmark. The following ranges are proposed. (The target asset allocations for the two managers are slightly different from those in the customised benchmark as the former do not include private equity, which is managed separately.) Proposed benchmarks are set alongside individual asset categories.

    Percentages

    Target Asset Allocation

    Permitted Range

    Range during Transition (if applicable)

    Benchmark

    UK equities

    42

    35-50

    40-55

    FTSE All Share

    Overseas equities

    of which

    North America

    Europe

    Pacific Region

    of which

    Japan

    Pacific Basin (ex Japan)

    Emerging Markets

    28

    9

    9

     

    9

    20-35

    6-12

    6-12

     

    1-6

    1-6

    0-4

     

     

    FTSE AW Developed North America

    FTSE AW Developed Europe ex UK

    FTSE AW Developed Japan

    FTSE AW Asia Pacific ex Japan

    DeAM – MSCI Emerging Markets Free; SIM – FTSE AW Advanced Emerging Markets

    UK Index Linked Gilts

    10

    5-15

    0-10

    FTSE – A Over 5 year Index Linked Gilts

    UK Fixed Interest Gilts

    4

    0-8

     

    FTSE – A All Gilt Stocks

    UK Corporate Bonds

    8

    4-12

    0-8

    Merrill Lynch Sterling Non-Gilts All Stocks

    Overseas Bonds

    0

    0-5

    0-10

    DeAM – Salomon Smith Barney World Govt Bonds ex UK (unhedged)

    SIM – Leliman Global Aggregates ex UK

    UK Property

    5

    2-8

     

    IPD Monthly

    Hedge Funds

    2

    -

     

    -

    Cash

    1

    0-10

     

    LIBID 7 days

    No money may be invested during the transition in hedge funds; the resultant cash may be spread among other assets, including cash, within the ranges for the time being. Also during the transition the targets for individual asset categories to be compared against benchmarks will be the mid points between end quarters. These are shown for information in Annex 1.

    RECOMMENDATIONS

  3. The Committee are RECOMMENDED to:

          1. agree the benchmark for total assets during the transition period set out in paragraph 2 (a);

          2. agree the asset allocation for overseas equities in paragraph 2 (b);

          3. agree the target asset allocations, permitted ranges and benchmarks set out in paragraph 2 (c).

A F BUSHELL
Independent Financial Adviser

July 2002

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