What is the first fund?
The fund will be a small global active equity fund. There is some merit in that as it enables us to get the systems and processes fully established and check everything is working. You need to do the same amount for one sub-fund as you do for 10 or 20, so it gives us some weeks to bed all the systems in. It is only three boroughs and about £0.5bn, but we need to walk before we can run and once up-and-running we will do more alternative investment.
Why not start with a very straightforward strategy like passive equities?
When this started up there is no doubt we were thinking of starting with passive because it is relatively easy, but actually when you look into passive and the holdings the boroughs have, bringing that together is not easy because there are lots of flavours of passive out there. However, passive does tend to carry a lot of money and so passive sub-funds tend to be a lot bigger and will be when they are launched.
What is the strategy for selecting funds and managers?
We analysed where all the boroughs are to date with their investments, which managers they are invested with and in what mandates and looked for commonalities. So where we have seen two or more boroughs invested with the same manager in the same mandate or strategy, we have had conversations about the opportunity to bring all the boroughs together into one mandate in the CIV and what that looks like in terms of economies of scale. There is quite a lot of commonality, but for one reason or another most of those conversations have not ended up in this final group of managers. What we have ended up with is four managers and nine sub-funds for launch and each borough will need to make its own decision about whether it is going to move or not. We may well do a bit more around talking to managers around that commonality strategy and will inevitably get into procurement of fund managers.
How will boroughs benefit from being part of the CIV?
There are large economies of scale and we have negotiated some very good fees and a number of the boroughs will make significant savings. If all the boroughs agree to move, by the end of launch we will be just over £6bn in assets under management and we will be making savings of somewhere between £2.5m and £3m per annum in terms of fees. On average we have seen fee reductions of 20% or more, but not every borough will see the same level of savings as it will depend on where they are to date and the scale of their investment. We have always done this for and on behalf
of the boroughs so every borough has chosen to be involved and stayed with it over the past couple of years. The more they invest and collaborate, the greater the savings.
Why not just merge the 34 funds?
If you look back 18 months or two years, ministers were adamant they were going to merge funds so we see the London CIV as a response to that showing you don’t actually have to merge in order to generate benefit. Actually a merger can be time consuming, expensive and hugely complicated if you think about all the different funding positions and maturities so bringing them together would be very difficult.
Comments