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LGPS consortium awards £6.5bn mandate to Legal & General IM

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A consortium of local authority funds has awarded Legal & General Investment Management (LGIM) £6.5bn (€9.2bn) worth of passive mandates, a doubling of mandates previously run for the funds by one of the UK’s largest managers.

The seven local government pension schemes (LGPS) – Cheshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Warwickshire and Worcestershire – were, in September, reported to be jointly tendering for passive equity managers to reduce costs.

As a result of the exercise, the Shires managed to reduce management fees by more than 50%, asking LGIM to run a series of passive equity, passive fixed income and smart beta strategies.

UBS Asset Management, State Street Global Advisors (SSGA) and BlackRock have lost mandates as a result of LGIM’s appointment.

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SSGA, for example, was responsible for a global index-tracking strategy worth 31% of the Warwickshire Pension Fund’s £1.6bn in assets.  

The fund also employed BlackRock for a passive multi-asset mandate.

UBS, meanwhile, ran a passive equity strategy for the Worcestershire County Pension Fund.

As a result of the mandate, LGIM has doubled the volume of assets run on behalf of the seven local authority funds.

All members of the consortium, with the exception of the £2bn Worcestershire Pension Fund, were already invested in funds run by LGIM.

Existing mandates were worth more than £3.9bn, largely stemming from £1.2bn in mandates from the £4.1bn Cheshire Pension Fund and a further £1bn from the Leicestershire County Pension Fund.

Bfinance, which conducted the tender on behalf of the consortium, said the exercise was completed in five months, after initial exploratory work by Staffordshire, Cheshire and Shropshire.

A spokesman for the consortium, which has £19.6bn in assets, praised the work done by bfinance and said he was pleased with the quality of LGIM’s funds and its experience in managing passive strategies.

He added: “Joining forces with other pension funds has enabled us to unlock significant savings and gives clear and tangible evidence of what can be achieved if LGPS funds are willing to work together and collaborate as equals.”

Pai Sarai, managing director and head of client consulting at bfinance, said the award to LGIM’s pooled funds was an excellent outcome after an “extensive and rigorous” tender process.

“Given this success,” he added, “we expect significant interest from other local government pension schemes in similar arrangements to achieve more cost-effective investment strategies.”

It is the second sizeable mandate award by local authority funds in recent weeks, following from the £6bn in sub-funds launched by the collective investment vehicle set up by London’s local authorities

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