Thirteen UK local government pension schemes with £36bn under management have become the latest group to combine their assets in order to satisfy the government’s pooling agenda.
Representatives from the group, the Border to Coast Pension Partnership (BCPP), met with Treasury officials last week ahead of Friday’s deadline to submit an initial proposal for how the funds can produce economies of scale and strengthen governance through pooling assets.
The proposal, seen by portfolio institutional, is in response to the government consultation published last November inviting the UK’s 89 local government pension schemes to design and implement “up to” six pools of assets, each with at least £25bn under management.
The founding members of BCPP – Surrey, East Riding and Cumbria – have been joined by an additional 10 local authorities: Bedfordshire, Durham, Lincolnshire, North Yorkshire, Northumberland, South Yorkshire, South Yorkshire Passenger Transport Pension Fund, Teesside, Tyne and Wear and Warwickshire.
BCPP’s paper said: “The intention of this submission is to set out an initial, high level proposal that demonstrates how the BCPP pool proposed to achieve the overarching aims of maintaining investment performance whilst achieving cost savings. The proposal meets the government’s other specified criteria (scale, governance, and how to build capacity to invest in infrastructure investment).”
Three of the funds – East Riding, South Yorkshire and Teesside – already manage their assets internally which together make up 34% (£12.2bn) of the £36bn pool. It is BCPP’s intention to consolidate and expand this capability.
The BCPP will operate as a collective investment vehicle (CIV) with the aim of receiving Financial Conduct Authority (FCA) approval by the end of 2017.
A “prudent” estimate outlined in the paper says the pool will produce net cost savings of between £20m and £40m a year within the next decade.
An executive body will be appointed in due course to make decisions on investment vehicles and manager selection and report to a supervisory entity containing a representative from each of the 13 BCPP members with overall accountability to the partner funds. Individual members will retain responsibility for asset allocation, governance and scheme administration.
Management of the individual members’ listed assets will transfer to the vehicle by the end of 2018, but unlisted assets, such as private equity vehicles and direct property holdings, will be given 15 years to transfer across.
Surrey County Council strategic finance manager (pension fund & treasury) Phil Triggs said: “There will be a residue of unlisted assets that will remain under the control of each individual authority with an acceptance that those will have been cashed out within 15 years. It is expensive to come out of these vehicles and we don’t want to take a hit unnecessarily.”
Last week the £11bn partnership between the London Pensions Fund Authority (LPFA) and Lancashire County Pension Fund (LCPF) announced it was in talks over joining the Northern Powerhouse pool made up of the Greater Manchester Pension Fund, Merseyside Pension Fund and West Yorkshire Pensions Fund, which have a combined £35bn under management.
LPFA’s submission to the consultation said: “We have exchanged letters of intent and are in discussion with these funds around how to best work together using the very significant in-house expertise of all the participants. Given the timescale, discussions are at an early stage, but the next steps between now and July are for all participants to develop a proposal around how the pooling arrangement will work and meet government’s criteria. All parties anticipate the discussions reaching a successful conclusion.”
LPFA said it was also in discussions with other funds including the Royal County of Berkshire either about wider pooling via the asset and liability management (ALM) partnership or specifically about direct investment in infrastructure.
There are now six LGPS pooling vehicles in development or already formed that are around or above the £25bn watermark. In addition to BCPP, these include the London CIV; Project Brunel in the South West; a group comprising schemes in the Midlands; the ACCESS (A Collaboration of Central, Eastern and Southern Shires) group; and the Northern Powerhouse.
