LPP – a pooling alliance comprising the £4.6bn London Pensions Fund Authority (LPFA), Lancashire County Pension Fund (£5.8bn) and the Royal County of Berkshire (£1.7bn) – received FCA authorisation in April. At £13bn the pool currently falls short of the government’s £25bn minimum requirement, but LPP says in its submission to government: “£13bn is just the start of our journey to expand our AUM.”
Under the LPP, individual funds set their investment objectives and strategic asset allocation while LPP Investments, the investment subsidiary of LPP, makes all sub-asset class and manager/stock selection decisions. It believes pooling can save net annual fees of £19.6m by 2021 (read our interview with LPP chairman, Michael O’Higgins).
In the case of Project Brunel, the £23.2bn pool which includes Avon, Cornwall, Devon, Dorset, Gloucester, Somerset and Wiltshire, Oxfordshire, Buckinghamshire and the Environment Agency Pension Fund, each fund will allocate its assets across investment portfolios based on its investment strategy. At present, 22 “risk and return focused” portfolios have been identified to meet the funds’ needs and the choice of underlying fund managers and structure of portfolios will made by the operating company, Brunel Company.
Project Brunel’s submission to government adds: “The number and nature of the portfolios will be kept under review, and will evolve and change over time in light of the developing asset allocation strategies of the funds.” Brunel believes its approach will create net annual savings of £13m by 2021, with the potential to rise to £70m a year in the longer term through increased economies of scale and improvement in investment performance.
COMMON PEOPLE
Meanwhile, the London CIV, a pool of 33 of London’s boroughs, is structured as an authorised contractual scheme (ACS), which is an FCA-regulated tax-transparent fund domiciled in the UK.
In terms of manager selection, the CIV has looked across the boroughs’ mandates and chosen managers where there are commonalities. At present it has £2.4bn AUM across five sub-funds, each run by a delegated manager covering different asset classes and strategies. It expects to have around £8bn under management by the end of 2016 and around £29bn by the time all assets are transitioned into the CIV.
London CIV chief executive Hugh Grover says: “Until now manager selection has been based on aggregating common investments with existing managers. That is where two or more boroughs are invested with the same manager in essentially the same (or very similar) mandate. On that basis we haven’t ‘selected’ managers in the full sense but have replicated what the individual boroughs have previously selected for themselves.”
However, Grover adds this approach is reaching its conclusion and from now on, the CIV will be going through a more “normal” search and selection processes. Indeed, it is currently conducting a search in the global equity space assisted by Mercer and Redington.
