How are you different from other vehicles such as the London Collective Investment Vehicle (CIV)?
CR: We are looking to create a multi-asset pool whereby we retain the sovereignty of the parent funds. That means LPFA and Lancashire Pension Fund continue to exist independently and retain control of their strategic asset allocation, but they pool their assets in one place. The London CIV, as I understand it, is a facilitated platform with around 30 different boroughs that will make their own decisions about whether they want to invest with that manager or this manager. If you have 30 different decision- makers they may invest in 30 different underlying funds and you have not got that scale and cost saving.
Who are the other parties you hope to get involved with pooling?
CR: In terms of explicit pooling it is other LGPS funds, but we don’t think it would be appropriate to name individual funds until all parties have reached an agreement. There is a lot of discussion between funds.
TD: This is relatively new for a lot of people’s consideration, so Lancashire and London are still forming it for completion in April. If I was the other LGPS funds I
would be observing it and asking what it is that attracts me to it. An increasing volume of detail will emerge in Q1 next year.
How is regulatory approval going?
CR: The regulatory application is in and there is no set timetable for when it needs to come back, but we are optimistic we will have approval through early in the New Year and meet our April target date to go live with the transition of assets.
Is LPFA moving towards more in-house management in general?
CR: One of the things LPFA has done recently is in-source some of our listed equity exposure so we now manage a £700m internal equity portfolio. The marginal
cost of putting more assets into that is relatively low, so as we bring other funds together we can scale that portfolio up with very limited additional cost. We have no explicit targets, but I would be surprised if we don’t have 50% internally managed over the next three-to-four years.
TD: I would be amazed if the average turnover of that portfolio was more than 20%. The nature of the investment process and philosophy meant when we hit the Q3 wobble the guys had their estimate of what they believed the value was, market jitters caused the mark-to-market decrease in the short term, but they were encouraged to look at the 10-20 year horizon and believed they should up the allocation and we have seen a subsequent bounce.
What was the philosophy behind the joint infrastructure venture with the Greater Manchester Pension Fund (GMPF)?
CR: Infrastructure is relatively illiquid and the lot size is fairly large, so if you want to maintain a diversified portfolio you need a large pool of capital and minimum level of resource. Working with GMPF we now have six investment professionals in London and Manchester working as a single team to appraise individual assets and make a joint decision over whether or not to buy them. That is where we get economies of scale and we will seek to replicate that direct approach in other asset classes such as private equity or real estate.
Comments