The London Pension Fund Authority (LPFA) has seen investment returns of 6.1% over the year to April, backed by rising markets and infrastructure, according to its annual report.
The £4.9bn (€5.9bn) fund, local authority scheme and third-party pensions administrator has long been an advocate for infrastructure investment, much through the influence of chairman Eddie Truell.
One the fund’s infrastructure investment managers aided a 20% return on its £135m allocation to the asset class in March 2013, as it sold down one its portfolio of assets, making a healthy return on its investments.
The fund now holds more than £170m in infrastructure, accounting for 3.5% of total assets.
It had previously signed up as a founding member of the National Association of Pension Funds (NAPF)-backed Pensions Infrastructure Platform (PIP), before bowing out over cost and return concerns.
Its £2.3bn in equity holdings returned 7.1%, with the largest manager, MFS, providing a 7.6% return on its investments.
The fund also used its annual report to announce the moving of equity assets to in-house management.
LPFA said the £534m mandate with Newton Investment Management would be terminated, as the manager no longer “fitted with our investment strategy”, adding that it would now develop an internal buy-and-hold strategy for large global stocks.
It increased its investment flexibility by merging two investment funds used to separate active members and those deferred or retired.
This led to a change in asset allocation and an increase in illiquid assets.
The fund holds £806m in illiquid assets, accounting for 16.5% of the portfolio.
However, its statement of investment principles said this should increase to 35% to benefit from the premium associated with these holdings.
The LPFA told IPE there was no formal timescale for this, or for bringing further assets in-house.
A shift to in-house would save on fees, the LPFA previously stated, with savings used to develop an asset-liability management system and invest in single private equity vehicles, avoiding funds of funds.
It said it made significant progress on developing the ALM project.
The LPFA added it would also look at opportunities as they came up and review the illiquid benchmark holding annually.
A spokesman said: “On illiquids, we have made material progress, but it is on an opportunistic basis.”
This came as IPE sister title, IPRE, reported that the LPFA would be funding the development of new private-rented housing in the east of London.
On its plans to shift in-house, the LPFA added: “We are building in-house capacity and capability, we look to get the best returns, and that may mean direct or co-investment or investing via an outsourced model.”
The fund said it was 93% funded, according to its triennial valuation.
However, the fund’s preferred, more conservative measurement of discounting on a risk-free basis valued funding at 61%, an increase of 11 percentage points.