Lancashire, London pension funds get go-ahead for partnership
The local government pension schemes (LGPS), situated some 230 miles apart, will now create a so-called asset liability management partnership, to be known as the Lancashire and London Pensions Partnership (LLPP).
With combined assets of £10.5bn (€14.8bn), the pair will maintain separate governance structures, with oversight boards in both London and Preston, but merge investments, liability management and administration.
Negotiation with asset managers on fee reduction will begin as the pair merge mandates and look to save £32m within five years.
The pair said its structure was set up to allow other schemes to join.
They will also aim to set up an asset pool, authorised by the Financial Conduct Authority (FCA), by April 2016.
Susan Martin, chief executive at the £4.8bn LPFA, said the partnership was another step to towards reducing LGPS costs, in addition to other measures such as the London funds’ collective investment vehicle – which is also looking to merge mandates.
Cost has been an increasing focus within the local government sector as schemes await central government plans on whether to force passive investments-only for listed assets.
The £32m in savings would come from renegotiations with asset managers, moving some asset management in-house, direct investments and merging the back office.
Lancashire has just over half of its assets with 12 external managers, while the LPFA uses 38 managers for a significant majority of its assets.
The London scheme paid £32.8m in investment manager fees, with £495,000 for its in-house team, in 2013-14.
Lancashire spent £11.3m.
LLPP said the location of investment and administration functions would remain split between London and Preston but over time would shift between the two.
The chief executive and CIO positions will be decided on once a non-executive board is in place and the partnership wins FCA authorisation.
George Graham, director of the £5.7bn Lancashire scheme, said it would depend on the business model as the venture develops.
He added that the efficiencies envisaged did not necessarily entail job losses.
“The people who will suffer in terms of [the partnership] are not necessarily our staff but our fund managers through the renegotiating of fees,” he said.
“We have sound figures we are confident of.”
Martin said both schemes were keen to provide a better value-for-money proposition for its members and sponsoring employers – and that the scale would make this easier.
“If an organisation wants to reduce costs, it is about ensuring efficient processes,” she said.
“This means doing it in-house when you have the scale and expertise and [merging] back-office processes.”
Both schemes currently have in-house asset management teams, with the LPFA known for its focus on equities and Lancashire for its focus on infrastructure.
The LLPP said it expected investment teams at both schemes to grow as a result of the partnership, given their complementary nature.
It also has no intention of bringing all of its assets in-house.
“The partnership is between Lancashire and London, but also about collaboration between our suppliers like external fund managers,” Martin added.
“We are not saying we’re going to do everything in-house, and we are looking to continue relationships with a partnership approach.”