Fund managers must be 'creative' with LGPS management fees
12 Oct 2012
UK - Fund managers must consider a more creative approach to management charges levied at the UK's local authority pension funds, according to the head of the £2bn (€2.4bn) Norfolk Pension Fund.
Discussing an imminent joint tender by Norfolk County Council and six other local authorities - with the view to creating a national framework agreement for both investment consultancy and custodian appointments - Nicola Mark told IPE that, while she did not think such frameworks would work for investment mandates, the local government pension scheme (LGPS) sector should consider "virtually" pooling assets to cut management costs.
"There is no real drive for the investment management industry to look more creatively at the way they charge the LGPS for their fund management services," said Mark, who is also a member of the National Association of Pension Funds' investment council.
"If you've got a similar mandate - say it's for global equities or UK equities - one of those managers who has 10 or 15 LGPS clients could give us the benefit of the total of those assets in terms of pay structure."
She added that, because fees were often based around an assets-under-management threshold, the ability to reduce fees by having a single, £500m mandate, rather than several individual and smaller ones, would be advantageous.
She said that such a virtual pooling approach would be preferable to hotly debated merger of the LGPS system.
"That means we get the full benefit without the huge capital cost of trying to work out how to merge funds, and there are all sorts of political issues," she said.
A previous proposal discussed by London's local authorities suggested the capital's schemes pool assets to create a £30bn vehicle, and debates have also previously included suggestions to merge the more than 100 funds into five regional funds.
The head of Norfolk said that previous attempts to merge or pool assets in Scotland had faltered because the undertaking was "fraught with political difficulty".
For more information on the upcoming national tender framework, see the November issue of IPE.
Author: Jonathan Williams