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IPE special report May 2018

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'Latecomer' Berkshire to formally join LPFA/Lancashire asset pool

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The Berkshire Pension Fund is set to join the Local Pensions Partnership (LPP), the asset pool established by the London Pensions Fund Authority and Lancashire County Pension Fund.

Nick Greenwood, pension fund manager at the Royal Borough of Windsor and Maidenhead, said in documents prepared for the 11 July pensions committee meeting that joining the LPP was the “best option available”, while accepting that immediate cost savings would be “negligible”.

Greenwood came out against joining one of the seven other asset pools – which includes the already operational London CIV – as it would be difficult to exert any influence on pooling arrangements because his fund was a “latecomer to the party”.

Weighing up the consequences of ignoring Department for Communities and Local Government (DCLG) requests to join a local government pension scheme (LGPS) asset pool, Greenwood said: “At the very least, the borough would incur the wrath of DCLG and adverse publicity.”

The LPP, set up by the two LGPS, so far only has assets under management of £11bn (€13.8bn), well short of DCLG’s £25bn target for asset pools.

While Berkshire’s decision to join LPP formally, set to be ratified by its pensions committee today, will boost the £2bn venture, the fund will still not help it reach the £25bn asset target.

Berkshire drew up a list of issues it wished to finalise before formally joining the LPP, including the ability to direct a certain percentage of its assets without needing to reach a consensus with the LPP’s two other shareholders.

According to documents prepared for the 11 July meeting, Berkshire wishes to retain control of up to 10% of assets – equivalent to £200m – to direct in local investments “for the sole benefit” of the fund.

Despite the ringfencing of assets, the minutes concede that these could still be managed by the LPP, even if the other shareholders would not stand to gain from any generated returns.

Joining the LPP, the second asset pool to become operational, would have further benefits for Berkshire, as it would not be required to contribute towards the £1.5m cost of launching the LPP, nor would it be required to contribute towards regulatory and working capital required for the venture – which the report prepared by Greenwood said stood at £17.5m.

While Berkshire has been weighing up its pooling options for a number of months and signed a letter of intent to join the venture in June, its pensions committee deferred a final decision to formally join the LPP during a committee meeting last month.

If Berkshire’s pension committee decides to join, it will also be a signatory to the venture’s pooling submission, due to be sent to DCLG by 15 July.

A draft submission presented to the committee estimated it would cost the pool £2.5m in transition management costs to consolidate its equity holdings alone, citing an estimate by transition manager Macquarie.

The submission further estimated the LPP would employ the equivalent of 34.5 full-time employees, with the majority of these roles, a total of 23, within investment management and oversight.

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