Pension fund group seeks single manager
1A group of l
ocal authority pension funds are set to seek a single manager for a combined £6bn of passive investments in a move they say could drive down fees across the sector.
Last week, ’s pension fund committee agreed to progress the plans, which officers estimate could save 30% on the current fees being paid.
The seven funds, including Cheshire and Staffordshire, hope that they can drive down fees by using collective bargaining power, and are in the process of drawing up a tender for a single manager.
Colin Pratt, investment manager at Leicestershire County Council, told Room151: “The existing passive managers used by the group know that they will either end up managing all £6bn of the assets, or they will manage none of them. This should mean that they focus very clearly on the level of their fee.”
Currently, Leicestershire has around £1.1bn of its £3bn of investments under passive management, all in equities, and hopes it could save £300,000 in annual fees through the proposed arrangement.
The non-passive part of the portfolio would remain unaffected by the proposals.
Pratt said the plans were being discussed well before the government’s Budget announcement that it would force councils to collaborate if they did not come up with voluntary proposals.
He added that he is unconcerned by reports that the government is looking for proposals for pooled investment of between £25m and £30m.
He said: “It is likely to be two to three years before the government’s pooling arrangements come into effect, so why stop now and throw away savings we could make in the interim.
“We are not worried that our scheme might be considered sub-scale at this point – we hope the government will look at our approach positively.”
Documents approved by Leicestershire’s pensions committee last week said that other funds would be welcome to join the collaboration if doing so didn’t slow down the process.
However, Pratt said that the inclusion of additional funds would be unlikely to bring significant further cuts in fees payable.
He said: “Our advice has been that £6bn should be of a sufficient scale to achieve some big savings – above that then additional savings become marginal.
“But we hope that if we are successful it should bring downward pressure on passive management fees across the LGPS and other funds will benefit from that.”
Photo (cropped): reynermedia, Flickr
Far cheaper to manage internally through index futures so why the sub optimal solution?