Contact: Anthony Dodridge, (01962) 847407; email: [email protected]

1 Summary

1.1 Following a competitive tendering process, the Panel appointed Northern Trust Global Services Limited for the provision of the Fund's custodian services on a global basis for seven years with effect from 1 August 2006. These services had previously been provided by separate custodians engaged by the Fund's then three main managers - Aberdeen, Schroders and SGAM.

1.2 This report reviews the custodian services provided by Northern Trust over the first 21 months of their contract.

1 Recommendation

That the satisfactory performance and quality of global custodian services being provided by Northern Trust be noted.

2 Provision of custody services

2.1 The custody services provided by Northern Trust to the Fund include:

· safekeeping of assets

· settlement of trades

· collection of income from dividends and interest

· tax reclamation services

· corporate action processing

· proxy voting

· foreign exchange

· cash management

· investment manager reconciliation

· consolidated investment accounting reports

· regulatory reporting

· transaction cost analysis reporting

· performance measurement

· stock lending.

3 Quality of service

3.1 In overall terms, the Fund has received good quality custodian services from Northern Trust over the first 21 months of their contract.

3.2 Northern Trust's comprehensive range of custodian services has enabled the Fund to continue to manage its affairs with a focus on returns, reducing risk, issues around governance and compliance.

3.3 During the period, good contacts have been made with key operational personnel within Northern Trust. Similarly, good working relationships have been developed with their client liaison staff, who are both responsive and able to assist in resolving administrative problems and reconciling records.

3.4 Northern Trust provides information in both a timely and accurate manner. There are good reporting systems including the on-line `Passport' system, through which consolidated financial information, reporting and accounting of the Fund's holdings, transactions and performance monitoring can be readily accessed.

3.5 Whilst there were some minor difficulties at the outset and more recently a few minor errors associated with draw downs for private equity funds, these have been resolved.

3.6 The custodian services provided by Northern Trust will continue to increase in complexity as the Fund's portfolio continues to diversify in the emerging markets, bonds, private equity and hedge funds. There is ongoing liaison to maximise the facilities offered by Northern Trust.

3.7 The County Treasurer will continue to monitor Northern Trust's performance and will report annually to the Panel.

3.8 The Panel agreed at the last meeting that they did not wish to meet with representatives of Northern Trust.

4 Fees

4.1 Discussions are continuing in respect of analysing Northern Trust's fee invoices, which are in line with the contract schedule of rates for the assets that the Fund's managers have invested in. Income generated from stock lending has been higher than expected. A full report on the fees will be made to a subsequent meeting.

Section 100D - Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report.

NB: The list excludes:

None.

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