Anthony Parnell, treasury and pension investments manager at Carmarthenshire County Council discusses the pooling process for Wales Pension Partnership, picking managers, being ahead of the government when it comes to pooling and the importance of being responsible.
What stage is Wales Pension Partnership (WPP) at in its pooling process?
We have pooled our global equity investments into two sub-funds. They are valued at approximately £3.5bn. We have sub-funds set up for UK and European equities and we are currently working through the process of setting up fixed income sub-funds. We had a joint collaboration and procurement on passive investments a few years ago. We did that prior to the government prescribing us to pool our assets.
Why were you ahead of the government on this?
We were just looking for the opportunity. We knew that the shires had done something on passive. There were various reports produced a few years ago and we decided to bite the bullet and collaborate on passive investments to get cheaper fees, which we managed to get. So, there was a positive outcome.
One of the reasons for the creation of pooling was to cut fees, so how much do you expect your member funds to save?
It is difficult to say as it is early days. There are major savings to be made across the WPP and once our investments in global equities gather pace there will be substantial savings to be made there as well.
We are talking millions of pounds though, aren’t we?
We are talking millions of pounds of savings from investment manager fees over the long term. That is what we are looking at. It is not short termism.
What percentage of the £16bn of assets owned by your partner funds do you intend to have pooled by the end of 2019?
In this calendar year, it would potentially be more than 60%.
At the moment, global equities and the passive funds together come to at least £5.5bn.
That is what we have done so far. The fixed income and regional equities will take us up to £10bn by the end of the year.
Why were the first sub-funds launched by the Wales Pension Partnership targeting equities?
They are liquid and quite a high percentage of our eight partner funds’ capital is invested in these assets. It was a quick win, if you like. It was easier to engage with current managers in this area to review their fees and the transition between the global equity legacy funds and the target funds was the quickest win initially.
A couple of global equity managers were not performing in Wales, so it was a good opportunity to review them all. So that was important as well.
A big part of the appointment process is looking at responsible investment issues.
What is your global equity fund strategy?
We have not built our own vehicle. We have appointed an operator, Link Fund Solutions, for Wales Pension Partnership.
They have partnered with Russell Investments. So Link provides the platform and Russell provides the manager due diligence and selection service.
We have set up two global equity sub-funds – the Global Growth Fund, which has three managers and Link overseeing it. The second is the Global Opportunities Fund, where Russell Investments is the manager and there are seven sub-managers.
As part of that process Russell contacts managers and negotiates fee savings with them prior to appointing them to the platform.
Does WPP have any input on appointing its managers?
We don’t decide. It is Russell Investments and Link that make that decision. We engage with Link and Russell throughout the process.
We have an operator agreement with Link. It is the party that liaises with the Financial Conduct Authority (FCA) and sends it our prospectuses, because it is the FCA-regulated vehicle.
You have passed a lot of responsibility onto Link. Are you happy with what it has achieved so far?
Yes, from the fee savings that we have had from our current managers in the long term we will be making savings.
We are pleased with the engagement that Link and Russell have had with the eight funds in Wales and the joint-governance committee. The chairs of the eight local governance pension schemes in Wales sit on a joint committee and that is supported by an officer working group.
Link and Russell report back to the joint governance committee and the officer working group regularly.
It is more of a challenge to pool investments on the private market side because of the illiquidity, but all eight partner funds are committed to doing some pooling on the illiquid side.
When are you intending to launch your fixed income sub-funds?
There will be four fixed income sub-funds. The joint-governance committee has approved those sub-funds, but we haven’t done any investing yet.
We have another joint-governance committee at the end of June, so we will continue that process going forward. We would like to think that we could get those investments done by the end of the calendar year. That is our aim.
Another reason for pooling was to invest more private capital into upgrading roads, bridges and communication networks. Have you any plans for a specific infrastructure fund?
We are doing some work at the moment with Russell Investments and bfinance looking at illiquid assets and investing in the private markets.
That is being done concurrently with the other piece of work that Russell is doing for us. We are not as far forward with those as we are with the liquid asset vehicles.
We have a received a couple of reports from Russell and bfinance and will be taking subsequent reports to future joint-governance committees.
Is exposure to these types of assets something that your partner funds have requested?
We all have some alternative assets in our current strategies, whether it is property, hedge funds, private equity, etc…
It is more of a challenge to pool investments on the private market side because of the illiquidity, but all eight partner funds are committed to doing some pooling on the illiquid side.
What is your policy on ESG and responsible investing?
We have a draft responsible investment policy which we are developing. We should have a final responsible investing policy for Wales Pension Partnership in the autumn.
We are conscious that ESG policies and procedures should be embedded in the pieces of work we are doing with Russell Investments and Link.
We are conscious that ESG policies and procedures should be embedded in the pieces of work we are doing with Russell Investments and Link.
So responsible investment is important to you?
It is essential. We are committing to embedding it into our work.
You have global equity sub-funds, so does your responsible investing policy allow for the pool to own oil and gas companies?
The global equity managers decide to invest in companies as they see fit. We are not currently excluding anything.
We have been receiving regular reports on their investments, so we can analyse what companies our managers have invested in.
Are you briefing your managers to engage with their portfolio companies to improve their behaviour or policies?
Yes. When Russell Investments appoints managers on our behalf, part of the appointment process is reviewing their ESG criteria. So a big part of that is looking at responsible investment issues.
Are you working in collaboration with any of the other seven pools on investing?
I work for Carmarthenshire County Council, which is the host authority for Wales Pension Partnership, and we sit around a table regularly with the other seven pools to discuss various ideas and how we are all progressing. There is a sub-group on responsible investing; there is also a subgroup on infrastructure, so we have regular discussions with the other pools. We are not working in silos.
This is part of the whole collaboration exercise on reporting back to the local government minister regularly on progress.
There is a sub-group on responsible investing; there is also a sub-group on infrastructure, so we have regular discussions with the other pools. We are not working in silos.
What has the minister said about the progress at Wales Pension Partnership?
From recent communications we have had, he is comfortable with the progress that we are making. Without putting us on a pedestal, over the past 18 months we have done a lot of work and we are keeping the momentum going.
What news-flow can we expect to see from Wales Pension Partnership in the next 12 months?
We are currently developing a website as well as the other work we are doing. That should be up and running by the end of this calendar year. It will carry a lot of information on the pool, including governance, our investments and policies. So watch this space.
