Since Best Value came into force last year, UK local authorities (LAs) have been required to provide quality of services at the right price in all areas related to administration, functioning and investment strategies by putting into place clear standards of cost and quality, using the most efficient and effective means available.
Local authorities are also required to publish an annual Best Value performance plan, in which they have to compare their past and current performance against nationally and locally defined standards, stating priorities and targets for future improvement.
But Best Value is not about adopting someone else’s solution, but about finding the best and most efficient strategies to meet the specific requirements of each fund.
“Best Value means that local authorities have to challenge every service you have previously undertaken,” says Les Sutton, responsible for the local authority division at Phillips & Drew in London. “They have to start with a blank sheet of paper and look at all the alternative methods they could put in practice to be more efficient.” This means looking at asset liability studies, fees, asset allocation and “challenging if what they have been doing in the past is ‘best value’ for what they should do in the future”.
In terms of investment it is difficult to quantify the impact that Best Value is having on this field. As pension fund performances are linked to specific liabilities, comparing them on the same basis would be too simplistic and could lead to short-term approaches to investment and increased pressure on external managers.
“It is not best value in terms of who is the best buy, but in terms of who best meets your requirements,” Sutton says. “Local authority pension funds are not at all similar. They have different levels of maturity, different profiles and different political agendas, and they will always opt for the managers who best fit into their requirements.”
Looking at the figures published in the Local Authority Yearbook 2001 by London-based investment advisory firm PIRC, there are some significant changes in who is managing what. Phillips & Drew, which last year appeared in first position in terms of LA assets under management, is now third with£10bn. This year’s top of the ranking is Schroder with £11.5bn, followed by Deutsche with £10.7bn.
Henderson, Legal & General, Baillie Gifford, Barclays and Gartmore, all with more than £3bn in LA pension assets, are also near the top of the list.
The size of externally managed LA pension assets amounts to £75bn, according to PIRC’s yearbook. All these figures are approximate since some of the pension funds which responded to the survey did not include ‘assets-per-manager’ breakdown and only stated the name of the firm managing each mandate. In these cases, we split the total value of the mandate equally between all the managers listed.