Investment Strategy Statement
The Pension Fund Committee has drawn up this Investment Strategy Statement
(ISS) to comply with the requirements of The Local Government Pension Scheme
(Management and Investment of Funds) Regulations 2016 and the accompanying
Guidance on Preparing and Maintaining an Investment Strategy Statement. The
Authority has consulted its Actuary and Independent Financial Adviser in preparing
The ISS is subject to periodic review at least every three years and more frequently if
there are any developments that impact significantly on the suitability of the ISS
currently in place. Investment performance is monitored by the Committee on a
quarterly basis and may be used to check whether actual results are in-line with
those expected under the ISS.
The Committee will invest any Fund money not immediately required to make
payments from the Fund in accordance with the ISS. The ISS should be read in
conjunction with the Fund’s Funding Strategy Statement. Governance Overview
Oxfordshire County Council is the designated statutory body responsible for
administering the Oxfordshire Pension Fund. The Pension Fund Committee acts on
the delegated authority of the Administering Authority and is responsible for setting
investment policy, appointing suitable persons to implement that policy and carrying
out regular reviews and monitoring of investments.
The Director of Finance has delegated powers for investing the Oxfordshire Pension
Fund in accordance with the policies determined by the Pension Fund Committee.
The Committee is comprised of nine County Councillors plus two District Council
representatives. A beneficiaries’ representative attends Committee meetings as a
The Committee meets quarterly and is advised by the Director of Finance and the
Fund’s Independent Financial Adviser. The Committee members are not trustees,
although they have similar responsibilities. Investment Objectives
The Fund’s primary objective is to ensure that over the life of the Fund it has
sufficient funds to meet all pension liabilities as they fall due. In seeking to achieve
this aim, the investment objectives of the Fund are:
to achieve and maintain a 100% funding level;
to ensure there are sufficient liquid resources available to meet the Fund’s
current liabilities and investment commitments;
for the overall Fund to outperform the benchmark, set out in the next section,
by 1.3% per annum over a rolling three-year period.
The decision on asset allocation determines the allocation of the Fund’s assets
between different asset classes. The Committee believes that this is the single most
important factor in the determination of the Fund’s investment outcomes. In setting
the asset allocation the Fund has considered advice from its Independent Financial
Adviser and has used long-term cashflow modelling provided by the Fund’s Actuary.
Every three years, following the actuarial valuation, there is a fundamental review of
how the assets are managed. This review considers the most appropriate asset
allocation for the Fund in order to achieve its investment objectives and considers
advice from the Fund’s Independent Financial Adviser. A balance is sought between
risk, return and liquidity. The most recent review was undertaken in March 2017.
Diversification is the Fund’s primary tool for managing investment risk. Diversification
can improve returns and reduce portfolio volatility by ensuring that investment risk is
not concentrated in a particular asset class or investment style and by reducing
exposure to losses through poor performance of an individual asset class. In
considering asset class correlations it is acknowledged that these vary over time and
as such, are not indicators of how assets will behave relative to each other in the
future. Taking this into account, the Committee believes that spreading investments
over a wide range of asset classes is the most appropriate way to benefit from
diversification having considered the factors that may cause values for various asset
classes to move in the future.
The Committee has developed the following guidelines to assist in ensuring
appropriate diversification is maintained:
1. Exposure to a single security will be limited to 10% of the total portfolio.
2. No single investment shall exceed 35% of the Fund’s total portfolio.
3. Not more than 10% of the Fund may be held as a deposit in any single bank,
institution or person.
In considering the asset classes used to build the Fund’s overall portfolio,
consideration has been given to the suitability of those investments given the Fund’s
investment objectives and advice has been taken from the Fund’s Independent
Financial Adviser. The fund broadly defines assets as either return-seeking or
liability-matching assets and seeks to develop an appropriate balance between these
categories. Each asset class should be understood by the Committee, be consistent
with the Fund’s risk/return objectives, and provide the most effective solution for
delivering a target outcome.
The Fund currently constructs its investment portfolio using eleven distinct asset
classes. A target allocation and range is set for each asset class as shown in the
24 - 28
26 – 30
50 - 58
To be specified
19 - 23
6 - 10
7 - 11
4 - 6
2 - 4
0 – 5
Total Other Assets
19 – 36
To implement its asset allocation the Fund has a range of options available to
access the different asset classes. This ranges from undertaking investments in-
house to using external Fund Managers or selecting externally managed pooled
funds. Options to manage investments in-house need to be considered against the
capacity and skills available to the Fund. At present the majority of assets are
managed externally by Fund Managers.
In selecting Fund Managers the Pension Fund considers whether they are suitably
qualified to make investment decisions on behalf of the Fund and takes advice as
considered appropriate. The fund is primarily interested in the net return delivered by
an investment. While the return side of the equation is less controllable the cost side
is more certain. The Fund is conscious of the compounding effect that fees have on
total investment performance and considers the most cost effective way to invest in
an asset class while maintaining the same level of exposure to the desired outcome.
When selecting investments for some asset classes there is a choice available
between active and passive management. The Fund believes that active
management can provide benefits above passive management in some situations.
Active management gives the potential for outperformance relative to the passive
benchmark through the selection of holdings expected to outperform the general
market and through the use of cash to protect against downside risk. In considering
the most appropriate type of mandate the Fund will consider the potential for
outperformance, fees and risk. For some investment classes there are not passive
investment solutions currently available but the Fund will monitor the market to
identify any new products that are developed in the passive arena.
The individual managers’ performance, current activity and transactions are
monitored quarterly by the Pension Fund Committee.
The assets are currently managed as set out in the following table.
Legal & General
Legal & General FTSE AW-World (ex- Passive
Countries + 2.0%
Bonds & Index Linked
Legal & General
- UK Gilts
FTSE A All Gilts Stocks
- Index Linked
FTSE A Over 5 year
- Corporate bonds
IBoxx Sterling Non-Gilts
- Overseas bonds
JPMorgan Global Govt
(ex UK) traded bond
UBS Global Asset IPD UK All Balanced +1.0%
- Quoted Inv. Trusts
- Limited Partnerships
3 month Libor
+ 3.0 –
3 month Libor
Target performance is based on rolling 3-year periods
The primary goal of the rebalancing strategy is to minimize risk relative to a target
asset allocation, rather than to maximize returns. Asset allocation is the major
determinant of the portfolio’s risk-and-return characteristics. Over time, asset classes
produce different returns, so the portfolio’s asset allocation changes. Therefore, to
recapture the portfolio’s original risk-and-return characteristics, the portfolio needs to
The Fund has set ranges for the different assets included in the asset allocation,
these are not hard limits but there would need to be a clear rationale for maintaining
an allocation outside the ranges for any significant length of time. The fund takes a
pragmatic approach to rebalancing and is cognisant that rebalancing latitude is
important and can significantly affect the performance of the portfolio. Blind
adherence to narrow ranges increases transaction costs without a documented
increase in performance. While a rebalancing range that is too wide may cause
undesired changes in the asset allocation fundamentally altering its risk/return
Rebalancing meetings take place on a quarterly basis where the most recent asset
allocation is reviewed against the target allocations and the ranges in place. A
number of factors are taken into account in the decision on whether to rebalance
which includes, but is not limited to; current and forecast market dynamics, and
known future investment activity at the Fund level.
Where a decision is made to undertake rebalancing the Fund aims to use cash to
rebalance as far as possible, as this will minimise transaction costs and keep the
cash holding closer to target avoiding the need for future transactions with
associated costs. The rebalancing action will not necessarily take place immediately
after a decision has been made as consideration is given to market opportunities and
transaction costs. Restrictions on Investments
The Regulations have removed the previous restrictions that applied under the Local
Government Pension Scheme (Management and Investment of Funds) Regulations
2009. These restrictions set limits for types of investment vehicles but not for asset
classes. The Committee’s approach to setting its investment strategy and assessing
the suitability of different types of investment takes into account the various risks
involved and rebalancing is undertaken as described above to ensure asset
allocations are kept at appropriate levels. When making investment decisions the
suitability of the proposed investment structure is considered to ensure that it is the
most efficient in meeting the Fund’s objectives. Therefore, it is not felt necessary to
set any additional restrictions on investments.
In accordance with the regulations the Fund is not permitted to invest more than 5%
of the total value of all investments of fund money in entities which are connected
with the Administering Authority within the meaning of section 212 of the Local
Government and Public Involvement in Health Act 2007(d).
The overall risk for the Fund is that its assets will be insufficient to meet its liabilities.
The Funding Strategy Statement, which is drawn up following the triennial actuarial
valuation of the Fund, sets out how any deficit in assets compared with liabilities is to
Underlying the overall risk, the Fund is exposed to demographic risks, regulatory
risks, governance risks and financial risks (including investment risk). The measures
taken by the Fund to control these risks are included in the Funding Strategy
Statement and are reviewed periodically by the Committee via the Fund’s risk
register. Further details on the risk management process and risks faced by the
Pension Fund are also included in the Annual Report and Accounts document
produced by the Fund. The primary investment risk is that the Fund fails to deliver
the returns anticipated in the actuarial valuation over the long term. The Committee
anticipates expected market returns on a prudent basis to reduce the risk of
It is important to note that the Fund is exposed to external, market driven,
fluctuations in asset prices which affect the liabilities (liabilities are estimated with
reference to government bond yields) as well as the valuation of the Fund’s assets.
Holding a proportion of the assets in government bonds helps to mitigate the effect
of falling bond yields on the liabilities to a certain extent. Further measures taken to
control/mitigate investment risks are set out in more detail below:
The Committee manages the risk of exposure to a single asset class by holding
different categories of investments (e.g. equities, bonds, property, alternatives and
cash) and by holding a diversified portfolio spread by geography, currency,
investment style and market sectors. Each asset class is managed within an agreed
permitted range to ensure that the Fund does not deviate too far away from the
Benchmark, which has been designed to meet the required level of return with an
appropriate level of exposure to risk, taking into consideration the level of correlation
between the asset classes.
The Benchmark contains a high proportion of equities with a commensurate high
degree of volatility. The strong covenant of the major employing bodies and the
current forecast cashflow position enables the Committee to take a long term
perspective and to access the forecast inflation plus returns from equities.
Investment managers are expected to outperform the individual asset class
benchmarks detailed in the overall Strategic Asset Allocation Benchmark. The
Committee takes a long term approach to the evaluation of investment performance
but will take steps to address persistent underperformance. Investment managers
are required to implement appropriate risk management measures and to operate in
such a way that the possibility of undershooting the performance target is kept within
acceptable limits. The Fund Managers report on portfolio risk each quarter and are
required to provide internal control reports to the Fund for review on an annual basis.
A proportion of assets are invested passively to reduce the risks from manager
Close attention is paid to the Fund’s projected cash flows; the Fund is currently cash
flow positive, in that annually there is an excess of cash paid into the Fund from
contributions and investment income after pension benefits are paid out. The Fund
expects to be cash flow positive for the short to medium term. Despite the significant
proportion of illiquid investments in the Fund, a large proportion of the assets are
held in liquid assets and can be realised quickly, in normal circumstances, in order
for the Fund to pay its immediate liabilities.
The Fund’s liabilities are denominated in sterling which means that investing in
overseas assets exposes the Fund to a degree of currency risk. The Committee
regards the currency exposure associated with investing in overseas equities as part
of the return on the overseas equities; the currency exposure on overseas bonds is
hedged back to sterling.
The risk of losing economic rights to the Fund’s assets is managed by the use of a
global custodian for custody of the assets. Custodian services are provided by State
Street. In accordance with normal practice, the Scheme’s share certificates are
registered in the name of the custodian’s own nominee company with designation for
the Scheme. Officers receive and review internal control reports produced by the
custodian. The custodian regularly reconciles their records with the investment
manager records, providing a regular report to officers which they in turn review.
The Council allows the Custodian to lend stock and share the proceeds with the
Council. This is done to generate income for the Fund and to minimise the cost of
custody. To minimise risk of loss the counterparty is required to provide suitable
collateral to the Custodian. The levels of collateral and the list of eligible
counterparties have been agreed by the Fund. The Committee will ensure that
robust controls are in place to protect the security of the Fund’s assets before
entering into any stock lending arrangements.
The Oxfordshire Pension Fund is working with nine other administering authorities to
pool investment assets through the Brunel Pension Partnership Ltd. (BPP Ltd).
The Oxfordshire Pension Fund, through the Pension Committee, will retain the
responsibility for setting the detailed Strategic Asset Allocation for the Fund and
allocating investment assets to the portfolios provided by BPP Ltd.
The Brunel Pension Partnership Ltd is a new company which will be wholly owned
by the Administering Authorities. The company has received authorisation from the
Financial Conduct Authority (FCA) to act as the operator of an unregulated Collective
Investment Scheme. It will be responsible for implementing the detailed Strategic
Asset Allocations of the participating funds by investing Funds’ assets within defined
outcome focused investment portfolios. In particular it will research and select the
Fund Managers needed to meet the requirements of the detailed Strategic Asset
Allocations. The Oxfordshire Pension Fund will be a client of BPP Ltd and as a client
will have the right to expect certain standards and quality of service. A detailed
service agreement has been agreed which sets out the duties and responsibilities of
BPP Ltd, and the rights of the Oxfordshire Pension Fund as a client. It includes a
duty of care of BPP to act in its clients’ interests.
An Oversight Board has also been established. This will be comprised of
representatives from each of the Administering Authorities. It was set up by them
according to an agreed constitution and terms of reference. Acting for the
Administering Authorities, it will have ultimate responsibility for ensuring that BPP Ltd
delivers the services required to achieve investment pooling. It will therefore have a
monitoring and oversight function. Subject to its terms of reference it will be able to
consider relevant matters on behalf of the Administering Authorities, but will not have
delegated powers to take decisions requiring shareholder approval. These will be
remitted back to each Administering Authority individually.
The Oversight Board is supported by the Client Group, comprised primarily of
pension investment officers drawn from each of the Administering Authorities but will
also draw on Administering Authorities finance and legal officers from time to time. It
will have a primary role in reviewing the implementation of pooling by BPP Ltd, and
provide a forum for discussing technical and practical matters, confirming priorities,
and resolving differences. It will be responsible for providing practical support to
enable the Oversight Board to fulfil its monitoring and oversight function.
The proposed arrangements for asset pooling for the Brunel pool have been
formulated to meet the requirements of the Local Government Pension Scheme
(Management and Investment of Funds) Regulations 2016 and Government
guidance. Regular reports have been made to Government on progress towards the
pooling of investment assets, and the Minister for Local Government has confirmed
that the pool should proceed as set out in the proposals made.
Oxfordshire County Council has approved the full business case for the Brunel
Pension Partnership. It is anticipated that investment assets will be transitioned
across from the Oxfordshire Pension Fund’s existing investment managers to the
portfolios managed by BPP Ltd between May 2018 and March 2020 in accordance
with a timetable that will be agreed with BPP Ltd. Until such time as transitions take
place, the Oxfordshire Pension Fund will continue to maintain the relationship with its
current investment managers and oversee their investment performance, working in
partnership with BPP Ltd. where appropriate.
Following the completion of the transition plan outlined above, it is envisaged that all
of the Oxfordshire Pension Fund’s assets will be invested through BPP Ltd.
However, the Fund has certain commitments to long term illiquid investment funds
which will take longer to transition across to the new portfolios to be set up by BPP
Ltd. These assets will be managed in partnership with BPP Ltd. until such time as
they are liquidated, and capital is returned.
The Committee recognises that environmental, social and corporate governance
(ESG) issues, including climate change, can have materially significant investment
implications. The Fund therefore seeks to be a responsible investor and to consider
ESG risks as part of the investment process across all investments. The objective of
responsible investment is to decrease investor risk and improve risk-adjusted
returns. Responsible investment principles are at the foundation of the Fund’s
approach to stewardship and underpin the Fund's fulfilment of its fiduciary duty to
The Committee’s principal concern is to invest in the best financial interests of the
Fund’s employing bodies and beneficiaries. Its Investment Managers are given
performance objectives accordingly. The Council requires its Investment Managers
to monitor and assess the environmental, social and governance considerations,
which may impact on financial performance when selecting and retaining
investments, and to engage with companies on these issues where appropriate. The
Council believes that the operation of such a policy will ensure the sustainability of a
company’s earnings and hence its merits as an investment.
The Investment Managers report at quarterly intervals on the selection, retention and
realisation of investments on the Council’s behalf and on any engagement activities
undertaken. These Reports/Review Meetings provide an opportunity for the Council
to influence the Investment Manager’s choice of investments and to review/challenge
their stewardship activities but the Council is careful to preserve the Investment
Manager’s autonomy in pursuit of their given performance.
Just because concerns have been registered about a company’s performance on
ESG issues, doesn’t mean our fund managers will be instructed not to invest in that
company. It is then through active ownership we aim to drive change. Where
engagement is not seen to be resulting in sufficient progress, and so the risk
associated with a holding is increasing or not reducing sufficiently, the Fund will
As a passive investor, the Fund accepts that it will hold companies of varying ESG
quality due to the requirement to hold all securities in the target index. The
committee believes that passive investing offers a number of benefits that need to be
weighed against this and requires passive managers to demonstrate effective
engagement, as is the case for active managers. It is important to note that
ownership of a security in a company does not signify that the Oxfordshire Pension
Fund approves of all of the company’s practices or its products
The Committee is open to investing in Social Investments; investments where social
impact is delivered alongside financial return. The Committee further believes that
the goal of social impact is inherently compatible with generating sustainable
financial returns by meeting societal needs. The Fund has made investments in this
area and will continue to review whether further opportunities are available that offer
an appropriate risk/return profile. Stakeholders’ views are taken into account through
the representation of different parties on the Pension Fund Committee, which
includes a beneficiaries’ representative, and the Local Pension Board, which
consists of equal numbers of employer and member representatives.
The Fund will not use pension policies to pursue boycotts, divestment and sanctions
against foreign nations and UK defence industries, other than where formal legal
sanctions, embargoes and restrictions have been put in place by the Government.
One of the principal benefits, outlined in the Brunel Pension Partnership business
case, achieved through the enhanced scale and resources as a result of pooling is
the improved implementation of responsible investment and stewardship. Once
established and fully operational the Brunel Company will deliver best practice
standards in responsible investment and stewardship as outlined in the BPP Investment Principles.
Every portfolio under the Brunel Pension Partnership explicitly includes responsible
investment and an assessment of how social, environment and corporate
governance considerations may present financial risks to the delivery of the portfolio
objectives. These considerations will therefore be taken into account in the selection,
non-selection, retention and realisation of assets. The approach undertaken will vary
in order to be the most effective in mitigating risks and enhancing investor value in
relation to each portfolio and its objectives.
Policy on Exercise of Rights
As an investor with a very long-term investment horizon and expected life, the
success of the Oxfordshire Pension Fund is linked to long term global economic
growth and prosperity. Actions and activities that detract from the likelihood and
potential of global growth are not in the long-term interests of the Fund. Since the
Fund is a long-term investor, short-term gains at the expense of long-term gains are
not in the best interest of the Fund. Sustainable returns over long periods are in the
economic interest of the Fund.
The Fund recognises that encouraging the highest standards of corporate
governance and promoting corporate responsibility by investee companies protects
the financial interests of pension fund members over the long term. Stewardship
activities include monitoring and engaging with companies on matters such as
strategy, performance, risk, capital structure and corporate governance, including
culture and remuneration.
The Fund's commitment to actively exercising the ownership rights attached to its
investments reflects the Fund's conviction that responsible asset owners should
maintain oversight of the way in which the enterprises they invest in are managed
and how their activities impact upon customers, clients, employees, stakeholders,
and wider society.
The routes for exercising ownership influence vary across asset types and a range of
activities are undertaken on the Fund's behalf by Fund Managers including
engagement with senior management of companies, voting of shares, direct
representation on company boards, presence on investor & advisory committees and
participation in partnerships and collaborations with other investors. Where the
Pension Fund invests in pooled vehicles it will seek to gain representation on
investor committees if considered appropriate.
In practice the Fund’s Investment Managers are delegated authority to exercise
voting rights in respect of the Council’s holdings. Voting decisions are fully delegated
to fund managers, while recognising that the Fund maintains ultimate responsibility
for ensuring that voting is undertaken in the best interests of the Fund.
The Fund will exercise its voting rights in all markets and its investment managers
are required to vote at all company meetings where practicable. Market conventions
in some countries may mean voting shares is not in the best interests of the Fund,
for example where share-blocking is in operation.
The Fund has appointed an external company to monitor the Fund’s proxy voting at
the whole fund level. The Fund receives reports detailing where votes cast by Fund
Managers differ to the template vote recommended by the provider. The monitoring
service also includes the production of an annual report for the Fund summarising
and analysing the voting activity for the Fund including at Fund Manager level. These
reports are used to inform the Fund and to enable discussion with Fund Managers
Our approach to Stewardship, including the exercising of rights attached to
investments is outlined above and is consistent with the requirements of the UK
Stewardship Code. During 2017 we will develop this further by becoming signatories
to the code and clearly demonstrating our position in relation to all seven
principles. As part of the Brunel Pension Partnership (BPP) we are actively
exploring opportunities to enhance our stewardship activities.