LGPS exclusive: £40bn super pool under construction
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Three of the four largest Local Government Pension Scheme funds in England and Wales have revealed plans to work together on a “super pool” combining more than £40bn in assets.
Room151 has learnt that funds in Greater Manchester, West Yorkshire and Merseyside are working with a small group of other funds on a proposal expected to be submitted to government in February.
The initiative is the most ambitious project yet to emerge from the sector in response to a government mandated drive to reduce investment management fees across the sector through asset pooling.
A spokesman for West Yorkshire Pension Fund told Room151: “The funds are agreed on the principles and the direction of travel.
“We are learning from each other and building on the strengths of the individual funds such as low cost and high performing internal management and local infrastructure investing to create a world class investment pool.”
The spokesman would not reveal the identity of the smaller funds which are involved but said that the assets of the proposed pool would be “comfortably in excess of £40bn”.
“This clearly demonstrates scale and will enable significant investment in infrastructure, playing a leading role in collaboration with other pools or on a national basis in this area,” according to the statement. A formal announcement on the negotiations is expected shortly.
All three of the named main funds have significant in-house management capacity, although each uses some external managers for specific mandates.
At the last LGPS valuation round in 2013, the three named funds had a combined valuation of £28.365bn.
Greater Manchester, the largest fund in England and Wales, had assets of £12.59bn, while second-placed West Yorkshire held £9.96bn. The Merseyside fund, in fourth place, had assets of £5.82bn.
West Midlands Pension Fund (WMPF), the third largest fund, with £9.87bn in assets, is remaining tight-lipped about its intentions.
It is understood that discussions with other Midlands authorities are ongoing, but the fund is keeping the details close to its chest.
It told Room151: “Following the chancellor’s announcement inviting local authority pension funds to make proposals for investment pooling, West Midlands Pension Fund (WMPF) is exploring options with a number of other funds.
“At this stage WMPF cannot comment any further but an announcement on its intentions will be made in due course.”
In September, the Department for Communities and Local Government confirmed that low cost, outperforming internal investment teams would not be exempted from the pooling initiative.
However, it said that “outperforming internal investment teams are well placed to work together to lead and influence the pooling proposals”.
The creation of a £40bn fund would also seem to increase the possibility that Welsh funds will be allowed by government to create a combined fund of around £13bn.
Chancellor George Osborne initially indicated that he would like to see six pools of around £25bn each, but it is understood that he is prepared to be flexible on the exact size of each pool.
Linda Selman, head of LGPS investments at Hymans Robertson, said: “Like every grouping, [the Welsh funds] will have to make their case to government on why their grouping is one that can work.”
Photo (cropped): Digital Internet, Flickr.
