Lancs and LPFA merge assets and could open door to other funds

Lancashire County Pension Fund and the London Pensions Fund Authority (LPFA) could extend a proposed new £10bn pooled investment fund to other authorities, one of the officers involved has told Room151.
The two funds last week approved plans to investigate setting up a joint asset and liability management partnership to look after their assets.
The venture is aimed at providing benefits of scale and comes as the government considers the future shape of the Local Government Pension Scheme (LGPS).
George Graham, deputy county treasurer at Lancashire said: “Both ourselves and LPFA have in house investment teams with complementary strengths.
“Our view is that our proposals will work because we are relatively similar in size and (so is) our view of the world.
“We want to get our two funds working together and demonstrate the model works, but once we get it is going, there is no reason others can’t join.”

The proposed ALM partnership would be regulated by the Financial Conduct Authority and would see each pension fund retain its separate identity and local accountability.
According to the councils, it could ultimately cover all areas of activity involved in the running of the pension funds, including pension administration.
Graham said: “The advantage will be that any individual investment can be somewhat bigger.
“So rather than having to find other people to go in on your project you can go in on your own.”

In addition, he said, there could be less need to have external managers to manage funds – highlighting equities as an area where in-house capacity could be used.
He said that the two funds would retain their existing administrative teams, who would liaise on investment decisions.
“If Goldman Sachs can operate in London and New York then London and Preston shouldn’t be too much of a challenge for us to manage,” Graham said.
In theory, he said, the shape of the new collaboration could be altered in the light of forthcoming recommendations from the government on the structure of the LGPS.
One of the options in the government’s consultation was to create just two common investment vehicles (CIVs) for all of local government.
But Graham said: “I can see the government coming up with a single passive CIV for listed investments but I am less convinced that they could manage something similar for alternatives – I don’t think it would work.”
The two funds will now work on details of how the new model might operate, with a concrete plan set to be considered next year.

Luke Webster, director of finance at LPFA, told Room151 that the pooling of in house capacity would provide opportunities for greater specialisation and project ownership from staff.
Commenting on the extent to which assets would be brought in house, he added: “Our view in the long run is that the best way to run a collective fund is to use some specialist external expertise in certain asset classes alongside the internal capacity.”

Jennifer Mein, leader of Lancashire County Council, said: “Facing the challenges of supporting an ageing population, the government should be using the good practice of funds like our own and the LPFA’s to drive up the performance of the LGPS, rather than dumbing down to the average.”
Edmund Truell, chairman of the LPFA, said: “We believe, with a greater pool of assets, both pension funds will gain access to a wider range of investments.
“It is especially important to compete for desirable illiquid investments against the enormous international sovereign wealth funds and pension investors.”
“We firmly believe that large scale asset and liability management partnerships are the best way to deal with the challenges faced by UK pension funds.”
Currently, Lancashire’s pension fund is valued at around £5.5bn with the LPFA’s at £4.8bn.

Photo (cropped) by gabe popa