The local authority pension funds for East Riding, Surrey and Cumbria are in talks to launch an investment partnership, pooling £9bn (€12.3bn) in assets.
The three English local authority funds said the multi-asset pool could grow to as much as £20bn, as talks continue with other local government pension schemes (LGPS) ahead of a government consultation on pooling expected for later this month.
The proposal follows on from eight funds in the South West of England exploring the creation of a £19bn asset pool, the launch of a collective investment vehicle backed by most of London’s local authorities, and the eight Welsh local authority funds agreeing to jointly procure a passive equity manager.
Mel Worth, chairman of the £2bn Cumbria County Pension Fund, said the scheme was keen to “marshal [its] future by seeking like-minded partners to pool with” in the wake of chancellor of the Exchequer George Osborne’s announcement in July that he wanted to see pooled vehicles to cut costs “significantly”.
“The speed,” Worth said, “in which we have managed to move towards developing a solution to pool assets speaks volumes about the similarities of the funds but more crucially about the desire of those involved to collaborate and make this a success.”
Denise Le Gal, chair of the £3.2bn Surrey County Pension Fund, highlighted the opportunities to reduce costs through the pooling exercise and noted that it would help boost exposure to domestic infrastructure.
Osborne pledged in October to focus on infrastructure when he said pooling would allow billions to be invested in regional projects.
At the time, the UK Treasury said that if the LGPS asset pools were to “follow international norms”, their infrastructure exposure would need to increase – potentially by building in-house capacity.
East Riding Pension Fund, the largest of the schemes publicly linked to the venture, with £3.6bn in assets, already employs in-house management staff.
John Holtby, the fund’s chairman, said its in-house capacity meant it was committed to “sharing expertise, reducing costs and delivering expected returns”.
For the 2013-14 financial year, East Riding managed 75% of assets internally.
The £2.4bn was largely invested in equities, accounting for nearly 60% of internal assets.
The team also oversaw fixed income worth £420m, UK property holdings worth £206m and a £376m alternatives portfolio, comprising distressed debt fund holdings, infrastructure and private equity.
Its total management costs stood at £1.6m, or 0.06%, compared with £1.9m, or 0.23%, paid to sole external manager Schroder Investment Management.
Schroders was responsible for running half of East Riding’s corporate bond portfolio, 40% of the European equity portfolio and North American, Japanese and emerging market equities.
East Riding’s in-house experience leaves open the possibility of its managing assets on behalf of other members of its asset pool.
Scotland’s Lothian Pension Fund already advises fellow local authority fund Falkirk on a £30m infrastructure portfolio.
It has now confirmed it would like its in-house team to compete for private sector mandates once it has been authorised by the Financial Conduct Authority.