Investment Principles

West Yorkshire Pension Fund
Statement of Investment Principles

The Statement of Investment Principles has been prepared in accordance with the Local Government Pension Scheme (Management and Investment of Funds) (Amendment) Regulations 1999. City of Bradford Metropolitan District Council became the administering authority of the West Yorkshire Pension Fund in 1986. The Fund covers the five District Councils of West Yorkshire together with numerous other employers.

Investment Decision Making Process

The Council has delegated all its functions as administering authority of the Pension Fund to the Finance Director. The Head of Pensions and Investments, who reports to the Finance Director, has day to day control of the management of all aspects of the Fund's activities. The Finance Director utilises the Investment Advisory Panel as the vehicle for overseeing the Fund's investment functions. The Panel determines the investment policy of the Fund and has ultimate responsibility for investment strategy. The Panel undertakes its responsibilities through taking appropriate external advice, supported by the in-house investment management team. Once investment strategy has been set at the quarterly meetings of the Panel, the in-house investment management team undertakes sector and stock selection on a discretionary basis to implement the strategy.

Types of Investments To Be Held

West Yorkshire Pension Fund will hold investments in Fixed Interest Securities, Equities, Index Linked Securities, Managed and Unitised Funds, and Cash Deposits, covering all the world stock markets. A relatively small proportion of the Fund's investments will be held in Emerging Markets, both through direct investments and pooled vehicles. No direct property holdings are to be held, with the Fund's investment in properties being through the purchase of units in Property Unit Trusts. The Fund will not invest directly in unquoted companies, as the Fund's private equity investment will be undertaken via a number and mixture of venture and development capital funds. Stock lending will be actively pursued within the limits set down by law. The Fund will not directly use futures and options or currency hedging. Consideration may be given to investing in Hedge Funds in due course.

Balance Between Different types of Investment

The biggest proportion of the Fund's investment will be in Equities with approximately 70% to 80% invested in this asset class. This type of investment bias is intended to maximise growth in the value of assets over the long term. Fixed Interest Securities, Index Linked Securities, Managed and Unitised Funds (including Property Unit Trusts), and Cash Deposits will make up the balance of investment, and the distribution of investments between this group of asset classes will vary based on perceived economic and market conditions. The Fund's exposure to private equity (venture and development capital) has been increased to 2% of the total investment portfolio, and once achieved the percentage will be further reviewed. The Fund's planned asset allocation strategy will be to invest within the following ranges for each class:

Range %

UK Bonds
4 - 8

UK Index Linked Bonds
2 - 5

UK Equities
47 - 57

Overseas Bonds
1 - 2

Overseas Index Linked Bonds
0 - 1

Overseas Equities
20 - 30

Cash
3 - 10

Property
2 - 5

Private Equity
1 - 2

Risk

To minimise risk, the investment portfolio of the Fund will be continually monitored and reviewed, and the portfolio will be well diversified as evidenced by the fact that the Fund's equity holdings are spread across more than 300 UK companies, 600 foreign companies, and a range of unit trusts and managed funds. Risk will also be controlled by reviewing on an on-going basis the Fund's asset allocation relative to pension peer groups so that any major divergence from the average is acceptable. Custodian risk is controlled through an ongoing monitoring, and periodic review, of the custodial arrangements. Counter-party and cash management risk are controlled by the in-house investment management team through the setting of appropriate limits for exposure with any individual organisation.

Expected Return on Investments

The Fund's investment portfolio will be actively managed by internal managers, and the Fund's investment returns will be measured against two peer groups i) the local authority pension funds, and ii) the largest fifty UK pension funds (public and private sector). The expected return on investments will be such as to place the West Yorkshire Pension Fund above the median in both peer groups over the most recent ten year period, as measured independently by the WM Company.

Realisation of Investments

The majority of investments to be held will be in fixed interest securities and equities that are quoted on recognised stock markets, and may be easily realised if required. The liquidity in other classes varies enormously (for example in property and private equity).

Transaction Costs

The in-house team of investment managers utilise a core list of brokers to provide a dealing service for share transactions undertaken. Commission paid to brokers on share transactions are at competitive rates negotiated by the in-house investment managers. No soft commissions or commission recapture programmes are included. Transaction fees and custody fees are paid to HSBC for overseas stock market transactions on terms agreed with HSBC under the contract for banking services.

Socially Responsible Investment Investment

decisions are taken based on financial and commercial considerations so as to yield the best return by way of income and capital appreciation. If it is shown that particular types of social, environmental and ethical investment can produce at least comparable returns, then the Fund will invest in such companies as part of the normal investment process. The voting policy of the West Yorkshire Pension Fund is viewed as a fundamental contribution towards socially responsible investment. The Fund is committed to ensuring that the companies in which it has a shareholding adopt sound principles of corporate responsibility, particularly in relation to environmental and employment standards. The Fund will utilise the shareholding wherever possible, through the voting policy, to exert influence on those companies falling short of acceptable standards.

Exercise of Rights Attached to Investments

West Yorkshire Pension Fund will exercise its voting rights at the Annual/ Extraordinary General Meetings of all UK companies within the FTSE 350 in which the Fund has a shareholding. The voting policy to be adopted by the Fund at these meetings will be based on the latest 'Shareholder Guidelines' issued by the Pensions and Investment Research Consultants Limited (PIRC), an independent adviser to the pensions industry who provide policy research and analysis on shareholder issues. These 'Shareholder Guidelines' encompass the Combined Code of Best Practice arising from the Cadbury, Greenbury and Hampel Committees relating to corporate governance and corporate responsibility. The Fund will normally take up its entitlement attached to rights issues when offered at a discount to the current market price.

Myners' Report

In 2000, the Government commissioned a 'Review of Institutional Investment on the United Kingdom' by Paul Myners of Gartmore Fund Management Group. Paul Myners published the outcome of his review in a report in March 2001. In response to the proposals contained in the review, the Government issued a set of investment principles, and they cover the ten areas at effective decision making; clear objectives; focus on asset allocation; expert advice; explicit mandates; activism; appropriate benchmarks; performance measurement; transparency; and regular reporting.

WYPF supports and endorses these investment principles, and they are covered within the various sections of this Statement of Investment Principles. In addition, it should be mentioned that greater emphasis is now being placed on training for Investment Panel members, and a number of initiatives on this issue are being developed. Also, the Investment Panel has commissioned an independent asset liability study to be undertaken during 2002 to provide comment on the current asset allocation policy being pursued by WYPF.

	Range %

UK Bonds	4 - 8
UK Index Linked Bonds	2 - 5
UK Equities	47 - 57
Overseas Bonds	1 - 2
Overseas Index Linked Bonds	0 - 1
Overseas Equities	20 - 30
Cash	3 - 10
Property	2 - 5
Private Equity	1 - 2