MEMORANDUMDate14 December 2005

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To:All Members of the
Investment Committee / From:COUNTY SECRETARY'S
DEPARTMENT
Ask for:Adrian Service
Ext:25564
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INVESTMENT COMMITTEE

8DECEMBER 2005

MINUTES

ATTENDANCE

MEMBERS OF THE COMMITTEE

H G S Banks, N K Brook (Vice-Chairman), B N W Hammond, R Mays, A Mitchell,

H M Saunders (Chairman), D T F Scudder, E Singam.

Also in Attendance

D A Beatty (Executive Member for Resources)

M Strack – Unison (Observer)

Officers in Attendance

C Sweeney-Finance Director

S Groom- Group Auditor

A Service-Democratic Services Officer

K Spindler-Pensions Accountant

N Webb- Finance Manager

Upon consideration of the Agenda for the Investment Committee meeting on

8 December 2005 as circulated, copy annexed, action was taken or decisions were reached on individual items as recorded below :-

APOLOGY

An apology for absence was submitted on behalf of N Payne.

EXCLUSION OF PRESS AND PUBLIC

That under Section 100 (A) (4) of the Local Government Act 1972, the public be excluded from the meeting for items of business in 1. to 8. below on the grounds that they involve the likely disclosure of exempt information as defined in paragraph 7 of Part I of Schedule 12 to the said Act.

PRESENTATIONS BY INVESTMENT MANAGERS

The Chairman advised that in the interests of obtaining fuller information from Investment Managers making presentations without the risk of them having to divulge

their specialist views to competing Investment Managers also in attendance, starting from today’s meeting, Investment Managers would be invited to make their presentations and answer questions without any of the other Investment managers engaged by the Council in the meeting room.

1.PENSION FUND - INVESTMENT MANAGER’S REPORT (CAPITAL INTERNATIONAL) - PORTFOLIO FOR THE QUARTER ENDING

30 SEPTEMBER 2005

Keith Baker and Philip Winston from Capital International attended the meeting and advised of the activities undertaken on behalf of the Pension Fund during the past quarter and informed of the Manager's expectations together with their anticipated policy for the future.

Keith Baker advised that Peter Armitage one of the senior managers of their investment team was due to retire next year and details of the proposed team changes were not available in a handout form yet and would be sent to the Finance Director and the Investment Committee in the coming weeks.

Comment was made that the current style of Managers reports did not state whether the recent performance of the Managers was due to good or bad stock selection, policy or other factors.

In response to a question over recent performance which had not met the set benchmark for 3 years, Keith Baker stated that they had not radically changed the way they managed the Council’s investments and drew attention to the good returns they had achieved over 5 years.

The Committee noted that Capital International received the highest base fee

of all the Managers engaged by the Council which was more palatable whilst the Manager was adding value to the Council’s investments.

The Committee also noted the advantages of performance based fees which penalised poor performance i.e below benchmark set but also rewarded good performance with a higher fee being paid.

RESOLVED

That the report of Capital International be noted.

[Capital International’s two managers exited from the meeting at this point and

Schroder Investment Management two managers then entered the room.]

2.PENSION FUND - INVESTMENT MANAGER’S REPORT (SCHRODER INVESTMENT MANAGEMENT) FOR THE QUARTER ENDING 30 SEPTEMBER 2005

Lyndon Bolton and Ben Whitmore from Schroder Investment Management attended the meeting and advised of the activities undertaken on behalf of the Pension Fund during the past quarter and informed of the Manager's expectations together with their anticipated policy for the future.

In response to a question as to why the Council’s vote had been cast against the proposal which would have imposed a limitation on the powers of BAA plc in respect of planning applications for large developments, it was agreed that a briefing note explaining the logic of this action would be circulated to Investment Committee members.

RESOLVED

That the report of Schroder Investment Management be noted.

[Schroder Investment Management two managers exited from the meeting room

at this point.]

3.PENSION FUND - INVESTMENT MANAGER’S REPORT (BAILLIE GIFFORD) FOR THE QUARTER ENDING 30 SEPTEMBER 2005

RESOLVED

That the report of Baillie Gifford be noted.

4.PENSION FUND - INVESTMENT MANAGER'S REPORT (ALLIANCE BERNSTEIN) FOR THE QUARTER ENDING 30 SEPTEMBER 2005

RESOLVED

That the report of Alliance BernsteinInstitutional Investment Managementbe noted.

5.PENSION FUND - INVESTMENT MANAGER’S REPORT (JUPITER ASSET MANAGEMENT) FOR THE QUARTER ENDING 30 SEPTEMBER 2005

RESOLVED

That the report of Jupiter Asset Management be noted.

6.PENSION FUND - INVESTMENT MANAGER’S REPORT (MERRILL LYNCH) - PORTFOLIO FOR THE QUARTER ENDING 30 SEPTEMBER 2005

RESOLVED

That the report of Merrill Lynch be noted.

7.PENSION FUND - SUMMARY STATEMENT AS AT 30 SEPTEMBER 2005

The Finance Director drew attention to Baillie Gifford’s performance who alike Capital International had failed over the last 3 years to meet its set benchmark and advised that Baillie Gifford would be attending the next meeting of the Committee on 2 March 2006.

He stated that further discussions would take place with Capital International

on possible action to be followed as a consequence of recent poor performance.

RESOLVED

That the report of the Finance Director summarising the investments held at

30 September 2005, which detailed the performance of the Investment Managers during the last financial quarter, year and three year period be noted.

8.PENSION FUND – COST OF INVESTMENT MANAGEMENT

The Finance Director submitted a report giving a breakdown of all costs involved with investment management of the Hertfordshire Pension Fund during 2004 / 2005.

He stated that the advice of the Council’s Investment Consultant, Nick Sykes had been sought on the advantages / disadvantages of engaging Investment Managers paying performance based fees rather than basic fees.

The Committee noted that the annual total cost of investment management of the Council’s Pension Fund had increased from £4.8 m in 2003 / 2004 to £6.182 m

in 2004 / 2005. The Finance Director highlighted that the main part of this increased cost had come around from the decision to engage an additional specialist Investment Manager.

RESOLVED

That the report on all costs involved with the investment management of the Hertfordshire Pension Fund during 2004 / 2005 be noted.

9.MINUTES

The Minutes of the meeting of the Investment Committee held on

15September 2005 were confirmed as an accurate record.

10.PENSION FUND – REVISED ACTUARIAL VALUATION

The Finance Director gave details of the revised triennial valuation of the Hertfordshire Pension Fund as at 31 March 2004.

The revised valuation assumed the rule of 85 was removed from the scheme

and the likely savings from this were offset by increases in longevity.

The Council’s actuary also carried out a valuation as at 31 March 2005 to calculate the cost of revocation of the regulations to remove the rule of 85. This calculated

the cost to be 1.7% of payroll.

He stated that the main conclusions of the valuation results together with comparisons with the previous two valuations were as follows : -

20012004 Original2004 Revised

Liabilities£1,525m£1,835m£1,795m

Assets£1,370m£1,360m£1,360m

Deficit£155m£475m£435m

Funding Level 90% 74% 76%

The Committee noted the reduced number of actual active members of the pension scheme from 27,520 to 25, 254 and the consequent increased number of staff that had resigned and become deferred beneficiaries [16,870 to 17,604]. Such staff changes had been occurring without SERCO being notified and action was proposed to minimise this in the future.

RESOLVED

That employers pension contribution rates for the period upto 31 March 2008 as set out in Appendix A be implemented.

11.PENSION FUND - UPDATE ON LOCAL GOVERNMENT PENSION SCHEME REGULATIONS

A briefing note setting out the latest news on the Local Government Pension Scheme Regulations which were announced in a statement to Parliament on

2 December 2005 were circulated at the meeting.

The main proposals were to : -

  • remove the 85 year rule with effect from 1 October 2006 so as to comply with age discrimination legislation.
  • give employees the option to surrender £1 of pension for every £12 lump sum

they wished to acquire and by so doing would ensure that neither employers or tax payers would bear the cost of revocating the 85 year rule between 1 April 2005 and 30 September 2006.

  • put forward draft Regulations for consultation to cover the above changes.
  • determine protection arrangements for those staff close to retirement.
  • produce a policy discussion paper on the future look of the Local Government Pension Scheme and publish this in the summer of 2006.

RESOLVED

The contents of the circulated briefing paper on the Local Government Pension Scheme Regulations were noted.

  1. ANY OTHER BUSINESS

a) Date of Next Meeting

The Committee noted that the date of its next meeting was Thursday 2 March 2006 at 10 am.

b) Chairman’s Announcement

The Committee Chairman wished Members and Officers a Happy Christmas and New Year.

Andrew Laycock

CountySecretary

APPENDIX A

STATEMENT TO THE RATES AND ADJUSTMENTS CERTIFICATE

The Common Rate of Contribution payable by each employing authority under Regulation 77 for the period 1 April 2005 to 31 March 2008 is 20.1% of pensionable pay.

Individual Adjustments are required under Regulation 77 for the period 1 April 2005 to 31 March 2008 resulting in Minimum Total Contribution Rates expressed as a percentage of pensionable pay are as set out below:-

Notes

(1) These employers have no active members. Monetary amounts may be agreed with the Administering Authority and will be paid in addition to those shown for other employers in the pool.

(2) Allows for £3.5m lump sum paid on 16 September 2005.

(3)These employers have agreed to pay the following lump sums in addition:

(4) The rates for this employer have been amended to take account of a lump sum payment of £1.75 million made in September 2005.

(5) These employers have been included in the Rates and Adjustments certificate as requested by the Administering Authority although they had no members as at 31 March 2004 according to the membership data.

Further sums should be paid to the Fund to meet the costs of any early retirements using methods and factors issued by me from time to time.

Contributions expressed as a percentage should be paid into Hertfordshire County Council Pension Fund at a frequency in accordance with the requirements of the Regulations.

Further sums should be paid to the Fund by employers to meet the capital costs of any ill-health retirements that exceed those included within our assumptions.

The certified contribution rates represent the minimum level of contributions to be paid. Employing authorities may pay further amounts at any time and future periodic contributions may be adjusted on a basis approved by ourselves.

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