The Local Pensions Partnership (LPP) is an investment collaboration between Lancashire County Pension Fund, the London Pensions Fund Authority and soon to include the Royal County of Berkshire Pension Fund. The £13bn pool aims to create economies of scale and subsequent efficiencies for members as its assets grow. Chris Panteli sat down with chairman Michael O’Higgins to find out more.
“I don’t think across eight pools there can be eight different infrastructure and eight different private equity specialists. I think over time certain pools will become used by other pools for particular asset classes.”
Michael O’Higgins, Local Pensions Partnership
How does the pool work?
The pool is a Financial Conduct Authority (FCA)-regulated structure and we are expecting to get approval for authorised contractual scheme (ACS) status very soon. That will allow us to be pooling assets should we choose to do so. An important distinction I make is between pooling assets and pooling the management of assets; we are already pooling the management of assets.
Instead of having two separate spreadsheets, one in Lancashire and one in London, we now have everything on one spreadsheet and can therefore begin to look and say, “How many investment managers do we have? Which of them are performing? How many do we think we need? What things do we want to take in- house?” Also it allows us to input dates on when we might, subject to the FCA, begin considering pooling assets.
How will the actual pooling occur? It sounds like a complicated task
The reason I say dates rather than a date is not just to try and avoid doing too much business on one day, but because the different assets classes would pool at different times. It is indeed conceivable that some assets classes would never pool. For example, local property investments might best be left to be managed by somebody in the area. We might not think about pooling private equity investments until after we have sold them because they are in existing structures and unravelling them [is complicated]. With private equity you have got a timescale where you need to be willing to hang in for a few years. With some property investments the legal cost of selling them from one fund and then putting them in a pool might outweigh any gain that we’d have from running them together. What we can do is do all of the work of looking at what the balance of the managed pool looks like. Are there areas where because they are separate pools historically we may be overweight in certain funds or, more likely, individual stocks?
We can also begin thinking about how we get the assets we have conforming with the strategic asset allocation mandates that we have from London and Lancashire, which are slightly different. But also conforming to our view of where the balance of return and risk is to be held. Obviously even within the strategic asset allocation mandates there is some flexibility depending on how we see markets at any point in time. So far it has been about the management of the pool rather than pooling the assets per se.
I guess that is easy to do when there are one or two of you rather than lots of schemes
It is a lot easier. Obviously this pool was planned before the government decided everybody else should do it. The thinkingwas we would have at least two years to get our own act together before we started talked to others. We obviously had to do quite a lot of external stuff that we hadn’t anticipated because of the government plans, however.
At the moment the focus is very strongly on making sure we’ve got this business doing what it is meant to be doing rather than getting too distracted by what the options are. We are trying to respond to requests for information and guidance from other putative pools saying, “When you did it what did you do when you encountered this obstacle?”
