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Lothian Pension Fund seeks approval to run investments in-house

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The Lothian Pension Fund is to apply for authorisation from the UK financial regulator for its in-house management to be recognised, removing the requirement for external consultant approval.

The £4.1bn (€5bn) fund currently manages £2.8bn of its portfolio in-house, but investment decisions still require a sign-off from approved consultants.

However, after its application to the Financial Conduct Authority (FCA) for authorisation, the fund said the move would allow it to improve the governance of its in-house management.

Lothian, which includes the pensions for the staff of Edinburgh council, and manages the Lothian Buses Pension Fund and Scottish Homes Pension Fund, is one of very few public sector funds to obtain FCA status.

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The South Yorkshire Pension Fund (SYPF), another public fund to do so, fully received authorisation last year for its estimated £4.6bn in assets.

The Lothian Fund manages around 60% of its assets in-house, under the guidance of its nine permanent staff members, who run the regional and global equity mandates, and alternatives.

FCA authorisation would also allow the fund to manage investments for third-party clients. When asked, the fund did not deny any plans to do so, but said it was not its motive.

“The decision to seek FCA authorisation is focused on improving governance for the benefit of the Lothian Pension Fund, Lothian Buses Pension Fund and Scottish Homes Pension Fund,” a spokesman told IPE.

The fund said the decision to apply came after an external review of its in-house investment team to ensure it complied with regulation and industry best practice.

“We want to make sure our investment management operations are comparable with those in the private sector,” it added.

Alastair Maclean, director of corporate governance for Edinburgh Council, said the move was an important step for the fund to ensure it is responsive and prepared for the challenges for public sector pensions.

The fund is part of Local Government Pension Scheme (LGPS) Scotland, which includes all funded public pensions in Scotland.

The structure of 89 LGPS funds in England and Wales is currently under review by the government.

In the coming weeks, the minister responsible for local government pensions is expected to publish his proposal for the future of the LGPS.

Changes include the merging of pension funds by geography, or the creation of collective investment vehicles, to reduce costs and improve efficiency.

Maclean added: “The review has provided comfort that our internal investment operations are well structured and effective. It has also provided direction to further improvement in our controls if we are to gain authorisation from the FCA.”

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