Complaint to the CMA

The University of Cambridge, the colleges of the University of Cambridge, the University of Oxford,
and the colleges of Oxford University.

Cartel and Anti-Competitive Behaviour

Summary of the Complaint

1. My complaint is based in evidence from Oxford and Cambridge Universities and their
colleges of a joint and successful attempt to change the valuation of the £60bn Universities
Superannuation Scheme (USS) in order that both universities achieve competitive advantage
versus other universities. This would be to the disadvantage both to students in relation to
fees that they pay, and to commissioners of university research, not least public bodies
funding research via the taxpayer.

2. This evidence, from leaks and FOIA requests, is in the public domain. It shows

a. That the University of Cambridge, and some of its colleges saw a change in the valuation
of the scheme as providing competitive advantage over other universities in the UK,
particularly its nearest competitive rivals

b. That Cambridge University and its colleges possibly abused market position, and
(depending on their status as separate entities) engaged in apparent cartel like
behaviour to enact that valuation

c. That the University of Cambridge and its colleges enrolled the University of Oxford and
its colleges to act as an apparent cartel to subvert a consultation on the revaluation of
that scheme, in order to give the apparent cartel’s wishes disproportionately greater
weighting, and indeed so that it carried the day

d. That the Universities acted together to be given joint and exclusive access to USS
Pension Fund decision makers, notwithstanding their status as separate entities.

3. Documentary evidence, presented in a timeline, confirming points 1-4 is set out below.
There is much, much more in the public domain which may be of relevance from your point
of view.

Context of the Complaint

4. It is clear that Universities are subject to regulation inter-alia by the Competition Authority,
and, generally that the sector is aware of this (see for example here from Pinsent Masons,

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and here as an exemplar from the University of Wolverhampton). Also, there is your own
blog.

5. The market/business relation of Oxford and Cambridge colleges to each of Oxford

University, and Cambridge University, per se, and within their universities, to one another is
not clear. Ostensibly, colleges are independent of universities, and certainly colleges are
entities independent of one-another in governance. Cambridge colleges simultaneously
acting together but as separate entities, and with Cambridge University as a separate entity
forms part of this complaint.

6. Whether or not that part of my complaint stands or falls, it is without doubt that Oxford and
Cambridge Universities are two separate entities, as are the colleges of each university from
one another, and there is no statutory or other justification for their acting together for
exclusive market advantage.

7. Oxford and Cambridge Universities’ and their colleges acted together by seeking to change
the payment model of the £60bn Universities Superannuation scheme, from ‘Defined
Benefit’ (DB) to ‘Defined Contribution’ (DC).

8. The potential diminution of beneficiaries pensions as a consequence, led, following a ballot,

to a national strike by members of the Universities and Colleges Union. That strike is now
halted, but remains salient because it resulted in leaking and FOI exposure of minutes and
documents which I adduce here as evidence.

9. USS is a substantial concern, with assets of £60bn. I am aware it is subject to the regulation
of the Pensions Regulator, TPR. USS is also subject to other regulators (eg the FRC), so TPR’s
dominion over USS is not exclusive. Public domain evidence shows USS giving exclusive,
joint, insider access to Oxford and Cambridge and their colleges, though separate entities.
This might interest The Competition and Markets Authority.

10. Not all universities pay pensions through USS; only Oxford and Cambridge’s most immediate
competitors, for example other members of the Russell Group, and other research-led
universities. Largely teaching universities, most of which are the former polytechnics which
became ‘post-92’ universities, use the Teachers’ Pension Scheme (TPS).

11. Whether or not the CMA has locus in the case of USS per se, the fact of the joint and
apparently successful attempt to influence it using market-dominating and cartel-like
behaviour for exclusive competitive advantage by the separate university of Cambridge and
of Oxford is a matter for your serious and immediate concern.

12. The determining factor in the proposal to move to DC, as Oxford and Cambridge desired,
was a consultation conducted by Universities UK, an employers association, and charity, of
employers’ willingness to bear (what they saw as) risk in maintaining the Defined Benefit
scheme. According to that survey, forty-two percent (42%) of employers surveyed stated
that the current Defined Benefit Scheme implied too much risk, and that a more risk-averse
valuation was required.

13. Universities UK’s documented proposal to USS on the basis of this survey was that, while a
minority, 42% was so substantial as to require the move to the ostensibly less risky DC
model. The Trustees of USS, on the explicit and determinative basis of that 42% figure,
conducted revaluation of the fund accordingly and proposed the moved to DC likewise.

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14. Box 1 is the most succinct summary of the determinative effective of that 42%, from the USS
website. It is repeated elsewhere, for example in the House of Commons Library Briefing
(.pdf) on the matter.

A small majority of employers (53%) accepted the level of risk proposed, with many
qualifying that the proposals were at the very edge of what would be acceptable, and a
significant minority (42%) of survey respondents wanted less risk to be taken –
including some of the very largest employers. Just 5% of employers indicated that the
trustee should consider taking more risk.

While UUK confirmed the trustee’s judgement on their long-term capacity to support
the scheme, it also indicated that employers wished to reduce the chances of being
required to pay higher contributions in future.

In particular, UUK raised concerns about the challenges that would be faced if interest
rates were not to revert at the pace and within the timeframe anticipated in the
assumptions. It asked the trustee to consider whether the proposed investment
strategy (including the degree of interest rate hedging) was optimal for the level for risk
being run and the targeted level of returns.

We had originally proposed putting on hold the strategy agreed in 2014 to reduce the
investment risk for a period of 10 years whilst long term interest rates revert to more
“normal” levels.

UUK’s responses indicated to us that we should take a more moderate approach to

risk. The trustee board accordingly agreed to retain the 2014 approach to de-risk the
scheme’s investments over the next 20 years. In practice, over time, this means holding
slightly fewer growth-seeking assets and more fixed income assets, which in turn
results in a marginally lower income from investments to fund the current level of
benefits and recover the funding deficit.

Box 1: The Determinative Cambridge and Oxford Weighted 42%. My highlighting.

Source: USS Website: UUK Responds to USS’s consultation on funding proposals

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Overview of Evidence

15. Research conducted by academics, particularly by Professor Michael Otsuka of LSE, for
example here and here, and Dr Sam Dolan of Sheffield University for example here (but see
also, crucially, his twitter feed as @etymologic ) revealed the following:

a. That determinative 42% figure was the proportion of separate employers who
contributed to the Universities Superannuation Scheme. It was not weighted
proportionately according to numbers of members of the scheme each university
employed. A response from a university employing five thousand members of USS
was weighted equally to an institution- for example an Oxford College – employing
100. That scale of variation – characterised by Dr Dolan as giving equal weight to
‘whales’ and ‘snails’ - reflects the reality. His research into which institutions made
which choices also undermines the force of the ‘including some of the very largest
employers’ statement.

b. There was ‘double counting’ of Oxford and Cambridge Universities and their
colleges. That is, by best estimates of that 42%, over a third (16% of the total
respondents) were Oxford and Cambridge and their individual colleges, who were all
counted separately. By best estimates, those two universities and their colleges
employed about 3% of the scheme’s members (from the USS 2011 annual report,
the latest and only time figures on the scale of separate employers have been
collated).

c. Cambridge University and its colleges senior staff met and agreed that it was to their
and Oxford University’s competitive advantage that the USS should move to a DC
scheme. I note here this advantage was vis-à-vis near competitors, ie those involved
in USS, and not distant competitors in TPS.

d. Cambridge college bursars, and representatives of the University as a whole, shared

a pro-forma response to the survey, which was submitted by a number of its
institutions separately, in their capacity as separate employing entities.

e. Cambridge and Oxford University Bursars met together in a forum called OxCam,
and agreed that both their Universities, and both their sets of colleges would act
together in providing a common response to this survey. They did so, and thereby,
as two universities, employing 3% of total members of the scheme, were able to
represent their views as 16% of the employers contributing; ie over a third, of those
who wished the scheme to change its valuation basis (the determinative 42%). To
repeat, this was apparently to achieve competitive advantage.

f. Notwithstanding their status as separate entities, Cambridge and Oxford University

representatives were also able to meet jointly with the managers of USS before its
agreement to revaluation was announced. This meeting was one at which other
employer contributors – Oxford and Cambridge’s competitors – were not present.

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Competitive Advantage of Change to USS to Cambridge University

16. In its response to the Universities UK survey of September 2017 Cambridge University
stated:

The University (and the other financially stronger institutions) continues to lend its
balance sheet to the sector, which contains the cost of pension provision for all
employers. In a competitive market for research and student places the University
would be concerned if this appeared to be having an adverse effect on the
University’s competitiveness (by allowing competitor universities access to
investment financing or reducing their PPF costs in a way that would not be possible
on a stand-alone basis).

17. The belief that a current system might be having an adverse effect on an individual entity’s
current competitiveness does have a clear obverse, when stated this baldly. This is that a
different system would provide competitive advantage compared to competitor universities.

18. The only markets in which that advantage can accrue are in that for student fees; and in that
for research income. While home/UK undergraduate student fees are currently regulated,
post-graduate fees are not, nor is the number of students that may be admitted, nor are
fees for non-UK students, nor is the number of years an undergraduate degree course may
take. Increasing a typical degree from three years to four increases income derived by 33%.
Furthermore, there is no guarantee the current regulatory framework and rules will
continue to prevail.

19. As a single entity, of course, Cambridge University might be said to have the right to take a
competitive view; and to seek the establishment of its own, separate pension scheme – so
called sectionalisation. It did state this was its desired outcome:

The University has a strong preference for sectionalisation, if this can be arranged,
of both past and future service benefits and associated assets, with individual
employers responsible for funding individual deficit amounts and future service
benefits.

20. There is a means of achieving this – by, to all intents and purposes buying out and taking
over the USS liabilities for Cambridge staff. One might speculate that this is within the
University’s means, given the its view of the strength of its balance sheet.

21. The view of Professor Otsuka, however is that this was more than it was willing to pay. The
evidence in the public domain now is that this was a view that Oxford University and
Cambridge University had come to uniquely and jointly share. Therefore the two Universities
combined to enact a ‘cheaper way of leaving the scheme’, by switching its liabilities to those
of a cheaper Defined Contribution Scheme. This was to close down the USS as a Defined
Benefit Scheme in all Universities.

(all quoted comments from para 16 on, and other mention of Prof Michael Otsuka from his
Oxford and Cambridge’s Role in the Demise of USS, February 12, 2018)

22. Before the subsequent evidence of active collusion between Oxford and Cambridge
Universities is adduced, and likewise of their prima-facie ‘insider’ access to USS, it might be
argued that at this stage there is nothing that would concern The Competition Authority.

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Cambridge’s Abuse of Dominant Position and Cartel-like Behaviour

23. However, I would ask that you consider that Cambridge’s market status, as the top-ranked
university in the world, and self-confessed balanced sheet strength, means that it is in, in
market terms, in a ‘dominant position’ not affected by normal competitive restraints. This is
not a central part of my complaint, not least because the regulatory framework is not clear
to me. However, there does seem to be prima-facie cause for concern.

24. This dominant position was abused in relation to other competitors.

a) to establish a less advantageous pension scheme for those competitors, against their
expressed wishes and willingness to take on extra risk

b) re-establish its own more advantageous Defined Benefit pensions scheme for its own
employees, funded inter alia by increased student fees, to give it market advantage in
staff hires and retention.

25. Evidence of this intention is in Exhibit 1, below the paragraph beginning ‘Mr Seed
presented’. This indicates a desire for Cambridge University to maintain a DB scheme for
itself while acting to close the DB scheme down for the post-’92 sector in Higher Education
as a whole.

Exhibit 1: From Minutes of Cambridge University Pensions Working Group Meeting of 19th
January 2018.
Source: Response to FOI request to Professor Mouhot, 6th April 2018. Full document online
here.

26. Exhibit 2 is even more explicit on a) the aim of establishing Cambridge’s own DB scheme and
b) that Cambridge requires the DB scheme for the whole sector to close down to achieve

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this financially, as well as for, see above its September 18th 2017 statement), to its
competitive advantage.

Exhibit 2: From Minutes of From Minutes of Cambridge University Pensions Working Group
Meeting of 23rd February 2018.

Source: response to FOI request to Professor Mouhot, 6th April 2018 Document location as
exhibit 1.

27. What is also the case is that Cambridge University and its colleges organized to act together,
not as separate entities, to present the same case to close down the DB scheme; and to
present its/their singular view as the view of a number of separate entities to the UUK
survey, and to ensure that rather than ‘one’ employer, it was counted approximately 13
times over. This is clearest here in a leaked memo to Cambridge’s college bursars from the
Cambridge Pensions sub-committee to College Bursars, coordinating a collective response.
See also this twitter thread from Dr Sam Dolan which is forensic in revealing this collusion.

28. Cambridge is caught in a contradiction of its own making. It might claim to be a single entity
like any other UK university, attempting to influence the outcome of this survey. I would
argue that its dominant position suggests otherwise. That aside, though, the level of
influence it has been able to achieve over the Universities UK survey, and USS’ acceding to
its competitive strategy has only been possible as a result of it being multiple autonomous
entities, and these entities being treated as such by USS and UUK even given the collusion
between them.

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The Cambridge-Oxford Cartel-like Collusion to Subvert The Universities’ UK Employers Survey

29. Notwithstanding the prior section, it is indisputable that Oxford University and Cambridge
University and the colleges of each of them singly and collectively are separate entities in all
senses, market and otherwise. Evidence of this collusion is multifold, and largely collated by
Dr Sam Dolan. His twitter threads are too numerous, and too detailed to cite here, but
would I trust be the focus of your investigation.

30. The following exhibits are from Dr Dolan’s public sharing of documents. Exhibit 3 below is
taken from the minutes of an Oxford and Cambridge Bursars Meeting (the regular existence
of which appears to be anti-competitive and cartel-like of itself). These minutes seem to
show that Cambridge representatives urged those of Oxford colleges engaged in a shared
attempt to influence the outcome of the employers survey conducted by UUK; and that
Oxford college representatives agreed to do so.

31. It is of note that the second bullet point is a paraphrase of the ‘competitive advantage’ to
Oxbridge logic cited above. Notwithstanding the actual wording of the minute, it is hard to
imagine that its verbatim expression would not have mentioned the competitive advantage
seen in engineering this move.

32. Exhibit 4 documents the ongoing work between Oxford and Cambridge to promote the idea
of separate funds, or sectionalisation, supported by Universities UK, which is a charity, which
was aware that the status quo was the wish of the majority of its members, and that
concern had been expressed about the subversion of the survey. It contains a factual error –
in the survey, a majority was not in favour of a move to DC; and indeed, that majority
against was far greater than the apparent 58% when the cartel-organized double counting is
discounted

33. Also of import is the penultimate bullet point regarding a joint meeting between Oxford
bursars, Cambridge bursars, and USS. As separate and autonomous, and ostensibly rival
entities, it is not clear to me if USS understood the competition and cartel implications of
hosting private meetings for these two groups of colleges only.

34. Given that the exhibits in the previous section were prior to this meeting, it is open to
question whether the Cambridge and Oxford’s intention to set up their own, separate,
sectionalised defined benefit schemes were discussed at this meeting. One might reasonably
assume that they were. Moreover, even if the intention to close down the DB aspect of the
scheme for all USS member universities as a precursor to this was not discussed, it might too
be reasonably assumed that, as experts in their own fund, USS representatives would have
been aware of this consequence.

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Exhibit 3: Minutes of Oxford University’s colleges and Cambridge University’s colleges joint meeting
Source: Twitter-feed of Dr Sam Dolan @etymologic

Exhibit 4: Minutes of Oxford University’s colleges estates bursars committee, 17 October 2017

Source : Twitter-feed of Dr Sam Dolan @etymologic

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Conclusion

35.To reiterate, this complaint is made in a personal capacity. While I sign myself as
Professor, this is to establish my standing. However I am not an expert in competition law.
So, not least, it may be the case that I have omitted information or evidence necessary to
support my case. If this is so, I hope I will be given the opportunity to provide this, assuming
it exists. I may too have made basic technical mistakes.

36. Notwithstanding how the dispute over the USS pension resolves itself, and subsequent
statements from Cambridge University and its colleges, and Oxford University and its
colleges, there is not as I understand it, any intention to move away from the ‘risk averse’
valuation enforced by the cartel-like behaviour set out here. Moreover, whatever the
outcome of the dispute, this behaviour did transpire, and to let it pass without comment
sets a dangerous precedent.

Professor Bill Cooke

20 May 2018

drbill.cooke@gmail.com

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