Work in progress
Many local authority funds have already joined forces to achieve cost-cutting through initiatives such as the Norfolk Framework and Croydon Framework, which enable funds to share services and undertake joint procurement exercises wherever possible. In January the £430m Royal Borough of Kingston upon Thames Pension Fund appointed Aon Hewitt to provide investment advice through the Croydon Framework.
Elsewhere, both Islington’s Greening and Nick Buckmaster, pension fund committee chairman at the £580m London Borough of Waltham Forest Pension Fund, say boroughs in the north and east of London, including Newham, Enfield and Haringey, are currently in talks about investing collaboratively in residential housing – an asset class Islington committed £20m to at the end of last year. “We do work together with the other London councils in the Local Authority Pension Fund Forum (LAPFF),” says Buckmaster. “We are discussing residential housing – that is north and east London boroughs talking together.”
Even Greening concedes that for certain asset classes there is a case to be made for working together, particularly in areas such as housing and infrastructure. “An organisation like LPFA could propose action on those issues – we are already exploring those as individual boroughs in any case. That would be more helpful than make grandiose statements about taking people over.” However, in the case of infrastructure, Buckmaster believes bigger is not always better. His fund has just shy of 10% of the total fund (£50m) allocated to infrastructure through two managers and he advocates the merits of private equity infrastructure and energy as compelling investments.
“We have been able to move quicker and faster rather than en masse,” he says. “We allocated to two managers 18 months ago and would potentially look at others.” Commenting on a larger-scale pooled vehicle, Buckmaster says: “[Infrastructure] is a neat panacea to stimulate growth but the money does not go straight into the economy – there is a J curve that can be quite treacherous. You cannot just throw money at it and GDP goes up.”
No doubt a mega fund of around £25bn would benefit London’s infrastructure requirements but there are pros and cons. Smaller funds would benefit through being able to access asset classes requiring more due diligence and see a reduction in running costs, but the wider issue remains politically charged. Much remains unclear around whether liabilities will be pooled, the size of the group and who will run the vehicle. It will continue to be fiercely debated at both local and central government level and only time will tell what they come up with.
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