The eight local government pension schemes (LGPS) in Wales are looking for a joint manager of their passive equity and bond holdings, a mandate initially expected to be for some £2.6bn (€3.4bn).

As previously reported, the decision to procure a joint manager was taken by the Welsh LGPS last year in the context of long-standing discussions about collaborating to cut costs and increase efficiency.

The central government then intervened with the instruction for the 89 LGPS in England and Wales to pool assets, with eight asset pools having emerged so far ahead of a 19 February deadline for submission of consultation responses to the Department of Communities and Local Government (DCLG).

The eight* Welsh schemes have more than £11bn (€14.4bn) in combined assets.

Around the time of the decision to procure a joint manager, their passive equity and bond holdings were said to amount to approximately £3bn and were run by three managers across 18 mandates.

The three managers are BlackRock, Legal & General Investment Management (LGIM) and State Street Global Advisors (SSGA). 

Welsh LGPS passive mandates breakdown. Source: Invitation to Tender
UK Equity FTSE All Share 1,224.50
Global Equity Global Equity 438
  FTSE All World 90.8
US Equity FTSE North America 163
  FTSE All World Canada 8.8
  FTSE All World USA 258.3
European Equity FTSE All World Dev Europe ex UK 69.2
Asia Pacific Equity FTSE All World Dev Asia Pac ex Jap 53.2
  FTSE All World Dev Asia Pac Jap 24
Japanese Equity FTSE All World Japan 28
  FTSE All World Dev Japan ex UK 95% GBP  Hedged 11.3
Emerging Market Equity MSCI Emg Mkts 75.7
  IFC Investible Comp ex Malaysia 44.8
  MSCI Global Emg Mkts 32.1
  IFC Investible Comp ex Malaysia 8.8
Alternative Equity FTSE RAFI Developed 1000 QSR TR 93.5
Gilts FTSE All Stocks IL Gilts 61
  FTSE All Stocks UK Gilts 4.5
  FTSE All Stocks UK Gilts 3.1
  Iboxx Sterling Non Gilts All Maturities 8.3

The collaborating Welsh funds are now seeking to appoint a single manager jointly.

Aon Hewitt is running the procurement exercise.

The joint management of the funds’ aggregated passive investments is expected to be cheaper than if each fund separately ran its holdings.

According to tender documents, the new provider would ideally be able to provide funds that meet each of the existing passive benchmarks, of which there are 21 (see table).

The largest holdings to be managed are in UK equity, amounting to £1.2bn, with the FTSE All Share the benchmark. 

The next largest existing mandate is for global equity, for £528.8m, followed by North American equities.

The Welsh funds also have investments in European, Asia Pacific, Japanese and emerging market equities plus “alternative equity”.

Some £77m is in Gilts.

The deadline for tender submissions is 4 March.

The outcome of the procurement process is currently scheduled to be communicated the week of 28 March.

The most “economically advantageous” tender will win the mandate, according to an EU tender document.

In England, a consortium of seven local authority funds recently awarded LGIM £6.5bn worth of passive mandates, reducing management fees by more than 50%. 

*The eight schemes (and their administering authorities) are: 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.