New research on asset pooling in major international markets has shown that pooling in the UK can deliver additional value for the Local Government Pension Scheme (LGPS) funds in the future.
Seven UK LGPS pools – Access, Brunel Pension Partnership, Border to Coast Pensions Partnership, LGPS Central, London CIV, Local Pensions Partnership and Wales Pension Partnership – commissioned consultancy NMG Group to conduct the independent research.
The study, LGPS in the UK: Learnings from international peers, confirmed that scale benefits in international markets have already been demonstrated as “meaningful” and “realisable”, leading to improved performance after fees, better control over investments, and reduced costs.
Covering 11 comparable investors in seven major international markets where the pooling process is at a more mature stage, the research sought to understand the issues and challenges these pools experienced in their evolution.
There was consensus among respondents in that success was ultimately decided by long-term performance after costs against a benchmark established by stakeholders.
Additionally, the study also revealed that realising the benefits of scale could be accelerated by optimising governance, and hiring and retaining the right talent to deliver on the pooling opportunity – both of which are required for the enablement of long-term investment implementation.
“Establishing clear and contemporary investment governance from the start provides the clarity, certainty, and flexibility to assist partner funds in delivering the best long-term outcomes for beneficiaries. These are common features of pools judged successful by their peers,” it said.
The research report said that governance is critical to any well-run pension scheme and respondents believed this is especially the case with respect to pools, as additional stakeholders add layers of complexity alleviated through the concise mapping of roles and responsibilities.
Speaking on behalf of the commissioning pools, Mike O’Donnell, chief executive officer of London CIV, said: “Pooling is really delivering in the UK – with the pools up and running and good progress on transitioning the assets. This is therefore an ideal moment to plan for our next phase of development and our continued collective success.”
Rachel Elwell, CEO of Border to Coast, said: “This research gives us powerful insight into how we can deliver even greater value for the LGPS over the long term. More importantly, it gives each pool and their partner funds insight into, and understanding of, how pools have thrived internationally, which will allow them to make the right decisions for their own individual journeys.”
Border to Coast announced in July that it was on track to deliver £250m of savings to its partner funds.