Local Pensions Partnership launches with FCA approval and an eye on treasury assets
0The second Local Government Pension Scheme pool to gain regulatory approval will manage some treasury investments on behalf of one of its member councils, Room151 has learnt.
Following Financial Conduct Authority approval, announced this week, the Local Pensions Partnership (LPP) – a tie up between Lancashire County Pension Fund (LCPF) and London Pensions Fund Authority (LPFA) – will be able to officially pool their assets.
The LLP joins the London CIV as one of two FCA regulated entities to have emerged so far from ongoing efforts to pool LGPS funds.
Mike Jensen
Mike Jensen, formerly chief investment officer (CIO) at LCPF, will move to the new partnership as joint CIO, taking with him the treasury bond portfolio he manages on behalf of the county council.
Speaking to Room151, chief finance officer and managing director for LPP, George Graham, said: “Mike will be carrying out the same job he currently does for us, including the council’s main bond portfolio.
“The council’s other treasury operations have always been carried out by our traditional treasury team and that will continue.”
Jensen will become joint CIO at the new pension pool along with Chris Rule, formerly CIO at the LPFA, with responsibility for different asset classes split between the pair.
Susan Martin will move from her role as chief executive of the LPFA to the equivalent role at LPP.
Berkshire Pension Fund, currently a client of the pool, is in discussion about becoming an equal shareholder in the new body, according to Graham.
“If they want to join, they will have equal status, which will give them the right to appoint a non-executive director,” he said.
However, he added that shareholders do not benefit financially from the vehicle, with any profits being repaid or allowing lower fees for clients.
Graham also said that the new venture is considering “the germ of an idea” to create a new treasury investment product that would be accessible to smaller authorities.
He said: “In the past, a number of districts in Lancashire have asked if there is some sort of product we can create around a bond portfolio we can manage for them.
“One of the reasons that smaller councils are stuck investing with banks is that they will take their money and they are easy to deal with, but there is currently no comparable diversified solution for them.”
Graham also said that other than efficiency savings from pooling, the new arrangement will allow the funds to reduce costs relating to employer risk management and employer covenant issues.
“Our focus has always been wider than just pooling assets but all of that has been overtaken by the government’s intention to pool assets,” he added.
Local government pensions experts agree that the other emerging pools will also require FCA approval before they begin operations.
John Harrison, independent investment adviser to Surrey Pension Fund, said: “I actually don’t think you are going to have a choice. If you are going to be a repository of other people’s money, you have to be regulated.”
He warned that this would mean that individual authorities would have to sacrifice influence over the selection of pool fund managers.
“The FCA won’t allow the creation of a vehicle that has its decisions approved by another entity,” he said.
“There has been a pace of travel about the whole process that means that many councillors might not have clearly understood fully this consequence.”
Ralph McClelland, associate director at pensions law firm Sackers, said: “When you create a company or a trust and you appoint that to manage a pool of assets, it no longer has the exemption from FCA regulations that individual LGPS funds currently enjoy.”
The LPP also this week announced the appointment of a number of new non-executive directors, including Sally Bridgeland, former chief executive of the BP Pension Fund; Sir Peter Rogers, former chief executive of Westminster City Council and Robert Vandersluis, director of GlaxoSmithKline’s global pension investments.
LPP is currently recruiting for a full-time chief risk officer, with the position being held on an interim basis by Dr Angela Smith, who also moves from the LPFA.
Graham added that discussions about collaboration with the Northern Powerhouse pool, consisting of funds in Greater Manchester, Merseyside, West Yorkshire, are continuing.
The LPP’s combined assets of £13.71bn are currently significantly below the £25bn benchmark that the Treasury has set for the new pools.
