Eight Welsh local authority funds have appointed a single manager to £2.8bn (€3.5bn) in passively managed equity and bond holdings, resulting in more than £700m in losses for Legal & General Investment Management (LGIM) and State Street Global Advisors (SSgA).
The eight funds*, which have in excess of £11bn in assets, selected BlackRock as their sole passive manager, with the company now responsible for passive developed and emerging market equity mandates, as well as fixed income strategies and smart beta investments.
A spokesman for the Welsh funds said they were impressed with the “breadth, depth and quality” of the bids put forward following February’s tender process, which comes ahead of the Welsh funds’ establishing a formal asset pool as part of LGPS reform championed by the UK government.
“Our search was open to any potential provider who wished to submit a proposal,” the spokesman added, “and this helped to support an extremely competitive process, which was also reflected in terms of pricing.”
A spokesman for Aon Hewitt, which conducted the exercise on behalf of the funds, told IPE a total of four managers were considered for the mandate.
Aon Hewitt’s head of public sector investment consultancy Dave Lyons said the funds were able to achieve “considerable” savings as part of the joint exercise.
Unlike LGIM and SSgA, BlackRock already had an existing relationship with all of the eight funds involved in the exercise, managing in the case of the £1.9bn Dyfed Pension Fund 70% of its assets at the end of March 2015.
At the Powys Pension Fund, it was responsible for 45% of assets.
Overall, SSgA and LGIM were only employed to manage passive mandates for three of the eight funds. As a result, opting for BlackRock over SSgA or LIM would have kept transaction costs to a minimum for the consortium.
LGIM managed £363m in UK and overseas passive equity mandates for the £1.5bn City and County of Swansea Pension Fund, as well as a smaller, £99m passive fixed income mandate, according to the fund’s 2014-15 annual report.
The company also managed £60m worth of passive fixed income and equity mandates for the Rhondda Cynon Taf Pension Fund, while the £1.7bn Cardiff and Vale of Glamorgan Pension Fund had £321m in passive equity mandates managed by SSgA at the end of March 2015.
The situation reverses some of the losses BlackRock suffered after a similar joint exercise by English LGPS funds, which saw a £6.5bn mandate awarded to LGIM.
LGIM had existing relationships with all but one of the seven funds involved in last year’s exercise, and doubled its assets under management from the funds as a result.
*The eight schemes (and their administering authorities): Cardiff and Vale of Glamorgan Pension Fund (Cardiff), City and County of Swansea Pension Fund, Clwyd Pension Fund (Flintshire), Dyfed Pension Fund (Carmarthenshire), Greater Gwent Pension Fund (Torfaen), Gwynedd Pension Fund, Powys Pension Fund and Rhondda Cynon Taf Pension Fund.