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Lothian to increase collaboration with Falkirk following FCA authorisation

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Two Scottish local government pension schemes (LGPS) are increasing their collaboration efforts to improve investment and efficiency through economies of scale.

The £6.6bn (€7.3bn) Lothian Pension Fund said it had agreed a joint investment strategy with the £1.8bn Falkirk Pension Fund as part of a new collaborative model.

The announcement – contained in the fund’s annual report for 2016-2017 – followed the UK regulator’s authorisation of LPFI, formed as part of a new corporate structure at Lothian to support the in-house investment team and create efficiencies. LPFI can also facilitate co-operation with other pension fund investors.

Another new Lothian company, LPFE, employs staff and facilitates separate governance and controls for the in-house investment team.

The Lothian scheme – the second biggest in Scotland – said collaboration allowed other funds to benefit from the commercial advantage of its in-house team to bring benefits through scale investing.

It added that sharing costs between co-operating funds would allow reinvestment in systems and the in-house team.

Lothian Pension Fund has provided Falkirk Pension Fund with support on investment, including assistance on infrastructure allocations and procurement, for the past five years.

The fund said that, with the FCA authorisation, it had agreed a review of the arrangements and a new collaborative model, including a joint investment strategy panel to better align investment governance.

Under the new set up, the pensions committee of Falkirk Council would agree an investment strategy and delegate its implementation – including the selection of investment managers. This governance model is similar to that of Lothian.

According to Lothian, a joint investment strategy panel would advise the finance directors of each administrating authority (the City of Edinburgh Council and Falkirk Council) on the implementation of the strategy. 

In a separate statement, Lothian said that the joint investment strategy panel would consist of members of its internal investment team and jointly appointed external advisers.

Scott Jamieson and Gordon Bagot – currently advisers to Lothian – will stay on as independent advisers on the joint panel, and the two pension funds are to jointly procure an investment consultant.

Despite the increased collaboration between the schemes, Lothian said that the assets of both would remain separate and that investment strategy decisions would be retained by the respective pensions committees.

Last year, a spokesman for Falkirk County Council suggested it was considering using the in-house expertise of the Lothian team to look at an equity mandate.

He added that the approach was viewed as a “potential model and way forward for better collaborative work” across Scotland’s local authority schemes.

During the 12 months to the end of March, Lothian Pension Fund made seven investments alongside Falkirk Pension Fund and another one with the Northern Ireland Local Government Officers’ Superannuation Committee, which oversees the country’s £5.8bn LGPS fund.

Lothian indicated it expected further co-operation with other Scottish LGPS partners in 2017-18.

The announced collaboration is in line with a Scottish government-backed review recommending increased asset pooling and service sharing.

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