London Councils pushes ahead with collective LGPS fund

London Councils has revealed more details of its proposed collective investment vehicle for council pension funds in the capital, including how boroughs would exercise control over their investment allocations.
A report by the representative body is set to be considered by a meeting of council leaders next week, and says the new CIV would offer a range of sub-funds, each with a separate manager.
Managers would be selected by a new investment advisory team reporting into the board of directors of the overall fund, which would be designated an Authorised Contractual Scheme (ACS) under Financial Conduct Authority rules.
The report says: “Once the ACS itself is established, it would be at the discretion of the boroughs whether they choose to invest in any or all of the ACS sub-funds.
“In order to allow individual boroughs to decide asset allocations between managers, the assumption is that the fund structure will be an umbrella fund, with each sub-fund having a specific investment mandate and investment manager.”
Participating councils will be asked to pay £1 each as initial capital into the ACS, with this capital requirement increasing once the operator is authorised by the FCA, and investments are made.
Once regulatory approval was granted, the new vehicle would require £100,000 in capital, a cost that would be shared by participating councils, according to the report.
Officers have now updated their estimates for how much the scheme could save councils – ranging from £25 million to £120 million a year depending on how much is invested.
Ongoing administration costs are estimated at between £2.75 million and £6.1 million each year, the report says.
Initially, the investments would be passive mandates, but the report said that over time “active mandates and investments into alternatives such as property and some infrastructure assets may be added to the range of investments offered by the ACS”.
Only councils will hold ACS shares, and they would be represented on a committee, which would appoint directors.
If council leaders approve the report, interim directors will be London Councils chair Jules Pipe, vice chairs Teresa O’Neill and Ruth Dombey, Chris Bilsland, chamberlain of the City of London, Chris Buss, finance director at Wandsworth Council, Ian Williams, finance director at Hackney Council and John O’Brien, chief executive of London Councils.
This week, Hugh Grover, London Councils director of funding, performance and procurement said that 24 councils have now signed up, with eight others engaged and watching developments. One unnamed council has ruled itself out of participation.
It is understood that central government officials have indicated that the London plans will not be threatened by any recommendations made by ministers on the rationalisation of the Local Government Pension Schemes across England and Wales.
The government is set to announce its proposals for a shake-up of the scheme, following a consultation late last year.
The report said: “Informal indications are that, while undoubtedly leaders’ committee position will need to be considered in the light of whatever is published, it seems unlikely that the benefit of CIVs will be fundamentally challenged.”