Local authority pension funds on brink of unique collaboration
UK - Local authority pension schemes running identical investment mandates are on the brink of a collaboration that could pave the way to saving thousands of pounds in fund management fees.
The £1.6bn (€1.9bn) Cambridgeshire County Council and the £1.3bn Northamptonshire County Council pension funds are in talks to pool assets run in similar global equity briefs with Newton Investment Management that would result in a £100,000 cost saving.
The councils also claimed there would be efficiencies in terms of reducing the time spent monitoring and managing Newton's performance.
Such cooperation across fund management operations would mark a first for local authority funds, which, under financial pressure from the central government's austerity measures, are already making cost savings through shared administration services.
Paul Tysoe, group accountant at the Northamptonshire scheme, told IPE: "There is commonality [between the two global equity mandates], but this is a new world, and we are breaking new ground. We are examining how far we can take this to see if it is a goer."
At present, the Northamptonshire and Cambridgeshire funds have £195m and £187m invested, respectively, with Newton, and the key features of the two mandates are indistinguishable.
Both are benchmarked against the MSCI All Country World index, with outperformance targets of +2% and a tracking error in the range of 2-6%.
Annual charges are a minimum of £100,000 per council, with additional fees of 20% on any performance over the benchmark.
However, the two funds are run by different individual fund managers within Newton, leading to a difference in sector and stock selections.
Any joint arrangement would require the pension schemes to choose between the existing managers and establish one custodian to oversee the pooled assets.
Tysoe said the immediate focus was on ensuring the initiative did not compromise the assets of either local authority.
"We are trying to make sure the due diligence in place and the integrity of the assets owned by each fund is maintained - that is sacrosanct," he said.
"We must make sure there is no conflict, and this process must prove itself before it can go ahead."
No final decision is expected until well into the first quarter of 2012.