Reports that corporate pension funds are being encouraged to share management and pool assets, give rise to the intriguing notion that private sector schemes could learn from the experience of LGPS funds.
A little over a year since the then Chancellor, George Osborne, announced the intention to pool LGPS pension assets, the Local Pensions Partnership (LPP) launched a £5bn Global Equity fund, made up of the pooled holdings of its existing main clients and shareholder funds: the Lancashire County Pension Fund (LCPF) and London Pensions Fund Authority (LPFA).
The new fund not only provides tangible evidence that LGPS funds have risen to Mr Osborne’s challenge, but also acts as a timely reminder of the benefits that can be achieved by the broader community of pension schemes through this approach.
Through scale, greater in-house management and focus on risk management comes a greater range of investment and opportunity and this, together with the depth and breadth of an in-house team, leads to greater stability for all.
Of course, many corporate funds already have experienced, knowledgeable, skilled and talented teams in place, delivering for their members. But collaboration of the kind LPP has implemented almost inevitably means reduced key person risk in terms of skilled resource.
Similarly, costs can be more effectively reduced for asset classes which are managed externally and there are greater opportunities for investment in different asset classes or in existing asset classes which can produce greater returns at lower costs. There is more opportunity to research, test or to build up new relationships and explore other partnerships and co-investments. In our experience, liability management has taken a greater focus throughout the organisation, and there are also opportunities for improved service and greater efficiencies in scheme administration.
The process we are undergoing is one which not only the LGPS, but the wider pensions community can learn and benefit from. We have been able to share joint learning with our LGPS colleagues through the cross pooling group – a valuable collaboration which has at its heart the best outcome for fund beneficiaries and employers. We are all learning that grouping together is by no means a simple process, but the additional complexity hides the very significant benefits that undertaking this journey provides.
A number of corporate pensions schemes have already asked about our not-for-profit partnership and the LGPS pooling activity. Given our experience I would encourage corporate funds to consider greater collaboration and where appropriate come together with like-minded funds. The advantages for our customers are evidence enough, and it would be a shame if members of corporate schemes did not have the opportunity to enjoy similar benefits.
Susan Martin is chief executive of the Local Pensions Partnership
