UK - Scottish local authority funds with £8bn (€9.6bn) in assets have appointed Hermes Fund Managers to provide its voting and engagement services, following a joint tender overseen by City of Edinburgh council.

City of Edinburgh, the administering authority for the £3.5bn Lothian Pension Fund, put the position out to tender at the end of December, with the four-year contract estimated to be worth £1m.

As a result of the tender, the £2.2bn North East Scotland Pension Fund - administered by Aberdeen City Council - as well as the schemes for the Falkirk and Fife local authorities, with a further £2.5bn in assets between them, have agreed to hire Hermes to handle all of its voting engagement.

Describing the position, City of Edinburgh said: "The service provider will develop and maintain voting guidelines in consultation with the council and put in place a process that maximises the fund's opportunity to vote without impacting on stock-lending income."

Joint tenders by local authority funds have become increasingly common in the past few years, with the approach suggested by Lord Hutton's Independent Public Service Pensions Commission as a way for the schemes to reduce costs.

David Crum, former CIO at Strathclyde Pension Fund, which recently launched 330 Consulting, said such joint tenders were preferable over the possibility of merging local authority pension schemes.

"Essentially, the way forward is to let the LGPS continue the work they have already done to try and manage the costs through this route - if it does actually work, that's great," he said.

He added that if the joint tenders and framework agreements were successful, it would avoid the "difficult and convoluted" merging of funds, introducing complexity at a time when the LGPS was already reforming.

Last month, it was reported that London councils were debating the merits of pooling their pension fund assets, with the proposal going hand in hand with an infrastructure investment vehicle targeting projects in the capital.
Crum referenced the work done by Norfolk Pension Fund in conjunction with the county councils of Cambridgeshire, Northamptonshire, Lincolnshire, Buckinghamshire, Derbyshire and the London Borough of Croydon for a framework agreement covering actuarial and investment consultancy services as the way forward - with Norfolk's tender open to any of the more than 100 LGPS looking to make a new appointment.

He conceded that the approach would not always be possible with actuarial consultancy services, as the number of candidates who could apply was limited.

"If you got to something like unconstrained global equities, you might have to see a much bigger number of providers on that framework agreement," he said.

"That might become a little bit contentious, in terms of who makes it on [the framework agreement shortlist] and who doesn't - and how you go about analysing them."