Agenda and minutes

An apology for absence was received from Councillor Tanner.

Councillors Fooks, Harvey, Lilly, Service and Thompson declared personal interests as members of the Pension Fund Scheme under the provisions of Section 18 of the Local Government and Housing Act 1989.

To approve the minutes of the meeting held on 4 December 2009 (PF3) and to receive for information any matters arising on them.

The minutes of the meeting of the Committee held on 4 December 2009 were approved and signed.

10:20

Tables 1 to 10 are compiled from the custodian's records. The custodian is the Pension Fund's prime record keeper. He accrues for dividends and recoverable overseas tax within his valuation figures and may also use different exchange rates and pricing sources compared with the fund managers. The custodian also treats dividend scrip issues as purchases which the fund managers may not do. This may mean that there are minor differences between the tabled figures and those supplied by the managers.

The Independent Financial Adviser will review the investment activity during the past quarter and present an overview of the Fund’s position as at 31 December 2009 using the following tables:

In addition to the above tables, the performance of the Fund Managers over the past 18 months has been produced graphically as follows:

Graph 1 – Value of Assets

Graph 2 - Alliance Bernstein

Graph 3 - Baillie Gifford

Graph 4 – Legal & General

Graphs 5 and 6 - UBS

The Committee is RECOMMENDED to receive the tables and graphs, and that the information contained in them be borne in mind, insofar as they relate to items 7, 8 and 9 on the agenda.

EXEMPT ITEMS

The Committee is RECOMMENDED that the public be excluded for the duration of items 6, 7, 8, 9, 10 and 11 in the Agenda since it is likely that if they were present during those items there would be disclosure of exempt information as defined in Part I of Schedule 12A to the Local Government Act 1972 (as amended) and specified in relation to the respective items in the Agenda and since it is considered that, in all the circumstances of each case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information.

THE REPORTS RELATING TO THE EXEMPT ITEMS HAVE NOT BEEN MADE PUBLIC AND SHOULD BE REGARDED AS STRICTLY PRIVATE TO MEMBERS AND OFFICERS ENTITLED TO RECEIVE THEM.

NOTE: In the case of items 8 and 9, there are no reports circulated with the Agenda. Any exempt information will be reported orally.

The Committee was advised that Tables 1 to 10 had been compiled from the custodian's records.  The custodian was the Pension Fund's prime record keeper.  He had accrued for dividends and recoverable overseas tax within his valuation figures and might also have used different exchange rates and pricing sources compared with the fund managers.  The custodian had also treated dividend scrip issues as purchases which the fund managers might not have done.  This might mean that there were minor differences between the tabled figures and those supplied by the managers.

The Independent Financial Adviser reviewed the investment activity during the past quarter and presented an overview of the Fund’s position as at 31 December 2009.  He pointed out that UBS was nearly fully invested in property.  Members asked questions and the Independent Financial Adviser responded to them.

RESOLVED:  to receive the tables and graphs, and that the information contained in them be borne in mind, insofar as they relate to items 7, 8 and 9 on the agenda.

RESOLVED:      that the public be excluded for the duration of Items 6, 7, 8, 9, 10, 11 and 12 in the Agenda since it is likely that if they were present during those items there would be disclosure of exempt information as defined in Part I of Schedule 12A to the Local Government Act 1972 (as amended) and specified in relation to the respective items in the Agenda and since it is considered that, in all the circumstances of each case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information.

10:30 

Report of the Independent Financial Adviser (PF6)

The report sets out an overview of the current and future investment scene and market developments across various regions and sectors. The report itself does not contain exempt information and is available to the public. The Independent Financial Adviser will also report orally and any information reported orally will be exempt information.

The public should be excluded during this item because its discussion in public would be likely to lead to the disclosure to members of the public present of information in the following prescribed category:

3. Information relating to the financial or business affairs of any particular person (including the authority holding that information) and since it is considered that, in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information, in that such disclosure would prejudice the trading activities of the fund managers involved and would prejudice the position of the authority's investments in funding the Pension Fund.

The Committee is RECOMMENDED to receive the report, tables and graphs, to receive the oral report, to consider any further action arising on them and to bear the Independent Financial Adviser’s conclusions in mind when considering the Fund Managers’ reports.

The Committee considered a report (PF6) which set out an overview of the current and future investment scene and market developments across various regions and sectors.  The Independent Financial Adviser updated the Committee orally.

RESOLVED:  to receive the report, tables and graphs, to receive the oral report and to bear the Independent Financial Adviser’s conclusions in mind when considering the Fund Managers’ reports.

10:45

(1)         The Independent Financial Adviser will report orally on the performance and strategy of Baillie Gifford drawing on the tables at Agenda Items 5 and 6.

(2)         The representatives (Leslie Robb and Iain McCombie) of the Fund Manager will:

(a) report and review the present investments of their part of the Fund and their strategy against the background of the current investment scene for the period which ended on 31 December 2009;

(b) give their views on the future investment scene.

In support of the above is their report for the period to 31 December 2009.

At the end of the presentation, members are invited to question and comment and the Fund Managers to respond.

The public should be excluded during this item because its discussion in public would be likely to lead to the disclosure to members of the public present of information in the following prescribed category:

3. Information relating to the financial or business affairs of any particular person (including the authority holding that information) and since it is considered that, in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information, in that such disclosure would prejudice the trading activities of the fund managers involved and would prejudice the position of the authority's investments in funding the Pension Fund.

The Committee is RECOMMENDED to note the main issues arising from the presentation and to take any necessary action, if required.

The representatives (Mr L Robb and Mr I McCombie) reported and reviewed the present investments of their part of the Fund and their strategy against the background of the current investment scene for the period which ended on 31 December 2009.  The representatives responded to members’ questions.

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

11:25

(1)               The Independent Financial Adviser will report orally on the performance and strategy of Legal & General drawing on the tables at Agenda Items 5 and 6.

(2)       The  representatives (Daniel Blass and Jonathan Cloke of the Fund Manager will:

(a) report and review the present investments of their part of the Fund and their strategy against the background of the current investment scene for the period which ended on 31 December 2009;

(b) give their views on the future investment scene.

In support of the above is their report for the period to 31 December 2009.

At the end of the presentation, members are invited to question and comment and the Fund Managers to respond.

The public should be excluded during this item because its discussion in public would be likely to lead to the disclosure to members of the public present of information in the following prescribed category:

3. Information relating to the financial or business affairs of any particular person (including the authority holding that information) and since it is considered that, in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information, in that such disclosure would prejudice the trading activities of the fund managers involved and would prejudice the position of the authority's investments in funding the Pension Fund.

The Committee is RECOMMENDED to note the main issues arising from the presentation and to take any necessary action, if required.

The representatives (Mr D Blass and Mr J Cloke) reported and reviewed the present investments of their part of the Fund and their strategy against the background of the current investment scene for the period which ended on 31 December 2009.  The representatives responded to members’ questions.

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

12:05

The Independent Financial Adviser will report orally on the main issues arising from the reports from Alliance Bernstein and UBS in conjunction with information contained in the tables (Agenda Item 5).

The public should be excluded during this item because its discussion in public would be likely to lead to the disclosure to members of the public present of information in the following prescribed category:

3. Information relating to the financial or business affairs of any particular person (including the authority holding that information) and since it is considered that, in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information, in that such disclosure would prejudice the trading activities of the fund managers involved and would prejudice the position of the authority's investments in funding the Pension Fund.

The Committee is RECOMMENDED to note the main issues arising from the reports and to take any necessary action, if required.

The Independent Financial Adviser reported that he and the officers had met representatives of Alliance Bernstein and the company had reported that they had taken measures to improve their performance.  He also reported that the performance of UBS on overseas equities and property had been good and performance on hedge funds had improved in 2009. 

RESOLVED: to ask the Head of Finance & Procurement to invite the Hedge Fund Manager to attend the next meeting of the Committee and to note the main issues arising from the reports.

12:10

The Independent Financial Adviser will, if necessary, summarise the foregoing reports of the Fund Managers and answer any questions from members.

The public should be excluded during this item because its discussion in public would be likely to lead to the disclosure to members of the public present of information in the following prescribed category:

3. Information relating to the financial or business affairs of any particular person (including the authority holding that information) and since it is considered that, in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information, in that such disclosure would prejudice the trading activities of the fund managers involved and would prejudice the position of the authority's investments in funding the Pension Fund.

The Independent Financial Adviser reported that he had no further issues to report.

12:15

Report of the Head of Finance & Procurement (PF11E)

The Pension Fund employs the services of an Independent Financial Adviser (IFA).  It is appropriate to review the activities of the IFA on an annual basis.  Peter Davies, the current IFA, was appointed from February 2009 for five years with an option to extend for a further five years.  This is therefore his first annual review.

The public should be excluded during this item because its discussion in public would be likely to lead to the disclosure to members of the public present of information in the following prescribed category:

3. Information relating to the financial or business affairs of any particular person (including the authority holding that information)

and since it is considered that, in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information, in that such disclosure would lead to the disclosure of the amount proposed to be incurred.

The Committee considered a report (PF11E) on the activities of the Independent Financial Adviser over the last year.

RESOLVED:  to note the report.

(The Independent Financial Adviser left the room for this item.)

12:25

Report of the Assistant Chief Executive and Chief Finance Officer (PF12E)

The 2009/10 business plan for the Pension Investments team includes reviewing the need for external consultants and specifically whether it would be advantageous to have a permanent arrangement rather than appoint on an ad hoc basis.  This report is the outcome of that review.

The public should be excluded during this item because its discussion in public would be likely to lead to the disclosure to members of the public present of information in the following prescribed category:

3. Information relating to the financial or business affairs of any particular person (including the authority holding that information)

and since it is considered that, in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information, in that such disclosure would lead to the disclosure of the amount proposed to be incurred.

ITEMS FOLLOWING THE RE-ADMISSION OF THE PRESS AND PUBLIC

The Committee considered a report of the Assistant Chief Executive and Chief Finance Officer (PF12E) which reviewed the use of external consultants and specifically whether it would be advantageous to have a permanent arrangement rather than appoint on an ad hoc basis. 

RESOLVED: to

(a)               note the report;

(b)       agree to the commissioning of a review of the management of private equity once in the life of the Council, coinciding with the fundamental review of the Pension Fund’s Investment Management;

(c)        continue to employ consultants on an ad hoc basis as and when their specific expertise is required.

12:35

Report of the Assistant Chief Executive and Chief Finance Officer (PF13)

The report sets out proposed changes to the management of Pension Fund cash balances managed by the County Council.  The changes are necessary as a result of new legislation which prevents the pooling of cash balances for investment purposes from 1 April 2010 and requires pension fund cash balances to be held in a separate bank account from 1 April 2011.

The Pension Fund Committee is RECOMMENDED to:

(a)               note the requirement for a separate bank account for Pension Fund transactions from 1 April 2011;

(b)              delegate authority to the Assistant Chief Executive and Chief Finance Officer to apply the Council’s approved Treasury Management Strategy separately to the management of Pension Fund cash;

(c)               delegate authority to the Assistant Chief Executive and Chief Finance Officer to open separate Pension Fund bank, deposit and investment accounts as appropriate; and

(d)       delegate authority to the Assistant Chief Executive and Chief  Finance Officer to borrow money for the Pension Fund in accordance with the regulations.

The Committee considered a report of the Assistant Chief Executive and Chief Finance Officer (PF13) on proposed changes to the management of Pension Fund cash balances managed by the County Council. 

RESOLVED:  to

(a)               note the requirement for a separate bank account for Pension Fund transactions from 1 April 2011;

(b)               delegate authority to the Assistant Chief Executive and Chief Finance Officer to apply the Council’s approved Treasury Management Strategy separately to the management of Pension Fund cash;

(c)               delegate authority to the Assistant Chief Executive and Chief Finance Officer to open separate Pension Fund bank, deposit and investment accounts as appropriate; and

(d)       delegate authority to the Assistant Chief Executive and Chief  Finance Officer to borrow money for the Pension Fund in accordance with the regulations.

12:40

Report of the Assistant Chief Executive and Chief Finance Officer (PF14)

This report sets out the annual business plan and budget for the 2010/11 financial year and also includes proposals for member training.

The Committee is RECOMMENDED to:

(a)                     approve the Business Plan, as set out at Annex 1 to the report, for 2010/11;

(b)                    approve the Investment Management and Scheme Administration Budget for 2010/11, as set out in Annex 2 to the report;

(c)                     comment on the proposals for member training as set out in the report; and

(d)                    subject to (c) above, agree the arrangements for member training.

The Committee considered a report of the Assistant Chief Executive and Chief Finance Officer (PF14) on the annual business plan and budget for the 2010/11 financial year and also included proposals for member training.

Mr Gerrish reported that there was a possibility that £1.5m tax on dividends for stock lending could be recovered through the courts and sought authority to incur up to £100,000 in costs to pursue the matter.

Members of the Committee were reminded that they should advise the Head of Finance & Procurement if they were unable to attend training sessions.

RESOLVED to:

(a)               approve the Business Plan, as set out at Annex 1 to the report, for 2010/11;

(b)               approve the Investment Management and Scheme Administration Budget for 2010/11, as set out in Annex 2 to the report;

(c)               agree the proposals for member training as set out in the report;

(d)               authorise the Head of Finance & Procurement, after consultation with the Chairman of the Committee, to decide whether to pursue a claim to recover tax on dividends for stock lending up to a limit of £100,000 costs;

(e)               ask the Head of Finance & Procurement to report to the next meeting of the Committee on the current position on the group action claim for recovery of overseas tax;

(f)                 receive a report on the CIPFA guidance on a knowledge and skills framework for elected representatives together with a review of member training last year.

12:50

Report of the Assistant Chief Executive and Chief Finance Officer (PF15).

This report updates the Committee in respect of the recent consultation exercise on potential changes in the Funding Strategy Statement, and in light of the comments received, proposes a number of changes to the current Statement.

The Committee is RECOMMENDED to amend the Funding Strategy Statement as set out in paragraph 14 in the report.

LUNCH

The Committee considered a report of the Assistant Chief Executive and Chief Finance Officer (PF15) which updated the Committee on the recent consultation exercise on potential changes in the Funding Strategy Statement, and in light of the comments received, proposed a number of changes to the current Statement.

RESOLVED:  to amend the Funding Strategy Statement as set out in paragraph 14 in the report.

14:00

Report of the Assistant Chief Executive and Chief Finance Officer (PF16)

This report presents three applications for admission to the Local Government Pension Fund as follows:

(a)       The outsourcing of revenue and benefit services by Cherwell District Council

(b)       The outsourcing of the Child and Adolescent Mental Health Service from Children, Young People & Families

(c)        The re-tendering of the Oxfordshire Highways contract.

The Committee is RECOMMENDED to approve the above applications subject to the agreement to the terms of the Admission Agreements and this Committee being informed when the agreements are signed.

The Committee considered a report of the Assistant Chief Executive and Chief Finance Officer (PF16) which presented three applications for admission to the Local Government Pension Fund as follows:

(a)       The outsourcing of revenue and benefit services by Cherwell District Council

(b)       The outsourcing of the Child and Adolescent Mental Health Service from Children, Young People & Families

(c)        The re-tendering of the Oxfordshire Highways contract.

RESOLVED:  to approve the applications set out in the report subject to the agreement to the terms of the Admission Agreements and this Committee being informed when the agreements were signed.

14:10

Report of the Assistant Chief Executive and Chief Finance Officer (PF17)

On 24 December 2009, the Department for Communities and Local Government wrote to all LGPS Stakeholders in England and Wales inviting their comments on draft proposed changes to the regulations. This report covers the main elements of the proposal and seeks the Committee’s views of any issues it wishes to cover in a response to the Government. 

The Committee is RECOMMENDED to note the report, and to consider what response, if any, it wishes to send to the Government in respect of this consultation.

The Committee considered a report of the Assistant Chief Executive and Chief Finance Officer (PF17) on draft proposed changes by the Department for Communities and Local Government to the above regulations.

RESOLVED:  to note the report and to advise the Government that the Committee agreed with the proposal on Regulation 16.

14:20

Report of the Assistant Chief Executive and Chief Finance Officer (PF18)

The report provides information on write off’s which have taken place under the Council's Scheme of Financial Delegation.

The Pension Fund Committee is RECOMMENDED to note this report.

The Committee considered a report of the Assistant Chief Executive and Chief Finance Officer (PF18) on write off’s which had taken place under the Council's Scheme of Financial Delegation.

RESOLVED:  to note the report.

14:25

Report of the Assistant Chief Executive and Chief Finance Officer (PF19)

At the December 2009 meeting, the Committee delegated responsibility for the determination of compensation payments below £5,000 in cases of complaint under the Internal Disputes Resolution Procedure to the Assistant Head of Shared Services.  This report sets out the details of the one case determined since the last Committee meeting.

The Committee is RECOMMENDED to note the report.

The Committee considered a report of the Assistant Chief Executive and Chief Finance Officer (PF19) on the determination by the Assistant Head of Shared Services of one case of complaint under the Internal Disputes Resolution Procedure. 

RESOLVED:   to note the report.

14:30

The Assistant Chief Executive and Chief Finance Officer reports that the Department for Communities and Local Government has advised that there is a 0% increase to all occupational pensions for April 2010 as a result of a negative value for the retail price index at September 2009.   Basic state pensions will increase by 2.5% from 12 April 2010.   

The Committee was informed that the Department for Communities and Local Government had advised that there was a 0% increase to all occupational pensions for April 2010 as a result of a negative value for the retail price index at September 2009 and that the basic state pensions would increase by 2.5% from 12 April 2010.   

RESOLVED:  to note the report.

14:35

The Assistant Chief Executive and Chief Finance Officer reports that an audit of Fund Manager voting practices was undertaken for the period from October 2008 to September 2009.  Managers are required to vote in line with RREV recommendations unless they clear any variation to this with officers. One query has been raised with Baillie Gifford where they state that they had voted in line with RREV recommendations, although the audit picked up that they had not.  Baillie Gifford have apologised for this error as soon as it was brought to their attention and have indicated that they have strengthened their processes in this area. 

This would appear to be the case because in December Baillie Gifford notified officers that they wanted to vote against RREV recommendations in relation to one resolution at the Extraordinary General Meeting of Cairn Energy on 21 December.  The resolution was to allow the company to restructure the Capricorn long term incentive scheme (Capricorn is Cairn Energy’s exploration focused subsidiary).  This would have enabled executives to receive maximum payouts from their 2007 and 2008 awards despite failing to achieve their performance targets and demonstrate properly that the Capricorn business has added significant shareholder value since 2007.

The Assistant Chief Executive and Chief Finance Officer has no other issues to report for this quarter but it should be noted that all the managers have included pages within their valuation reports which provide details on their voting at company AGMs, engagement with companies and their involvement with other socially responsible initiatives.

The Committee is RECOMMENDED to note the report.

The Committee was advised by the Assistant Chief Executive and Chief Finance Officer that an audit of Fund Manager voting practices had been undertaken for the period from October 2008 to September 2009.  Managers were required to vote in line with RREV recommendations unless they cleared any variation to this with officers. One query had been raised with Baillie Gifford where they had stated that they had voted in line with RREV recommendations, although the audit had picked up that they had not.  Baillie Gifford had apologised for this error as soon as it was brought to their attention and had indicated that they had strengthened their processes in this area. 

This would appear to be the case because in December Baillie Gifford had notified officers that they had wanted to vote against RREV recommendations in relation to one resolution at the Extraordinary General Meeting of Cairn Energy on 21 December.  The resolution was to allow the company to restructure the Capricorn long-term incentive scheme (Capricorn is Cairn Energy’s exploration focused subsidiary).  This would have enabled executives to receive maximum payouts from their 2007 and 2008 awards despite failing to achieve their performance targets and demonstrate properly that the Capricorn business had added significant shareholder value since 2007.

The Committee was also advised that the Assistant Chief Executive and Chief Finance Officer had no other issues to report for this quarter but it should be noted that all the managers had included pages within their valuation reports which provided details on their voting at company AGMs, engagement with companies and their involvement with other socially responsible initiatives.

RESOLVED:  to note the report.

14:40

In looking at the possible dates for the 2010 Forum,  the Assistant Chief Executive and Chief Finance Officer reports that the only dates on which members have no scheduled commitments are Friday 10 December or Wednesday 15 December 2010.

The Committee is asked to decide on which of the two dates it wishes to hold the Forum.                

RESOLVED:  to hold the Annual Pension Forum on Friday 10 December 2010 at 10 am.