• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Q&A: London CIV – an opening shot in LGPS consolidation

0
  • by Colin Marrs
  • in LGPSi
  • — 24 Sep, 2015
Hugh Grover

Hugh Grover

Room151 catches up with Hugh Grover, chief executive officer at London LGPS Collective Investment Vehicle. He tells Colin Marrs that the first sub-fund could launch before the end of the year, and that the proposals fit neatly with government thinking on the pooling of LGPS funds.

What is the structure of the CIV and when is it set to launch?

HG: What we are setting up is a fully authorised and regulated Alternative Investment Fund Manager. We will be authorised to operate as any other AIFM and we are currently jumping through all of those hoops with the Financial Conduct Authority.

Below that we are setting up an investment fund structured as an Authorised Contractual Scheme. That is the UK version of a tax transparent fund. There are various tax transparent funds around the world – Luxemburg, Ireland – I think Germany has one now as well. We obviously want to use the UK version because it means local government pension funds will remain domiciled in the UK. If we did it through a foreign version it would look like we were putting LGPS funds offshore which would look slightly odd.

The ACS will act as an umbrella, under which we will set up a whole range of sub-funds.

The AIFM and the ACS are authorised and regulated separately – although both by the FCA. The former’s application went in in the summer. That is going through at the moment and we are responding to their queries. That is normal. The ACS application should be going in the next couple of weeks. My ideal timeline is that we get our first sub fund opened and funded before Christmas.

How will the sub funds operate ? What scale are we talking about at launch?

HG: For launch, we have been looking at where London LGPS funds are currently invested, looking at commonalities. We are talking to those fund managers about what we might do to bring multiple boroughs – which have similar investments with the same fund manager – together in one relationship to drive efficiencies and lower fees.

We are about to go out to all the boroughs informing them of the managers we have finalised conversations with, and  the sub funds we are proposing to set up with those managers, along with the fees we are proposing to put in place.

During the discussions about what launch might look like we have talked to 15 fund managers. Four have come through the process as the ones we are likely to deal with at launch. Initially, we are looking at nine sub funds.

There is likely to be a mixture of passive and active, but in broad terms more passive than active. Initially we thought that passive was easy so we would concentrate on those. However, when we took the lid off that tin we realised there is huge complexity around passive that you wouldn’t expect, relating to indices, weighting and so on. Picking all that apart and constructing it into a sensible package has taken a lot of work. We absolutely will have passive but we will also have at least three sub funds that will be active.

The fund at launch is not going to look very efficient and won’t look complete, but we are setting up a new and unique structure. We have to get structured and get funds launched and structures stress tested and then the sky is the limit.

We are still at the point where the boroughs need to make final decisions about coming across. If all do, we will be just over £6bn by the end of launch phase.

How liquid will the sub-funds be?

HG: In principle it will be as liquid as anything might be at the moment. Across the fund it will be easy to move from one sub fund to another. There may be less liquid funds. If initially half a dozen invest and then one wants to withdraw, we might be able to replace them with another borough. If one wants to withdraw and nobody wants to top it up, that is a different position. We would have to think through whether penalties for withdrawal would be necessary to protect the other investors. To some degree none of that is new. We will be a fund manager the same as any other – that involves knowing our customers and treating them fairly.

What are the incentives for boroughs to move investments into the CIV?

HG: Fund managers tend to charge on an ad valorem basis – if you give them a little bit, you pay a higher fee – give them a lot and they charge a lower fee. So what we are doing is taking a group of boroughs which are each investing a relatively small amount and often paying the highest fee level. We are bringing those together and aggregating, meaning you start falling down the ad velorum fee scale.

Because of the difference in the deals they are currently on, some boroughs will see significant savings, others will see less. However, all boroughs will at least see a small saving – why would they ever pay more for something they have currently got?

London boroughs currently have around 90 fund managers they deal with. I can’t imagine a scenario where the CIV will have 90 managers.

What is in it for the fund managers then?

HG: A number of things. Firstly, the manager will move from having multiple relationships to service to just one. The CIV will become their sole client, so there is some level of saving for them there. They only have to report once.

In addition, many of the managers recognise there is a step change going on across the LGPS in terms of looking for ways to drive down cost. Many of the managers have realised what we are doing in London is likely to be the first of a number of moves to similar structures. Even before the government came out and effectively insisted that the LGPS worked more collaboratively, a number of fund managers saw the writing on the wall; that what we were doing in London was real and tangible and would be delivered and London would exert the power of scale. A number saw that was likely to move on further. When they are looking at the mandates they are not just thinking about these mandates today but the longer term opportunities

Will you open up the CIV to other LGPS funds?

HG: As an ACS, we have to be open to any qualified investor. They have to be a professional investor in order to be able to come in. In principle that means we are open to the entirety of professional investors, be it private or public sector. We are focusing on the London LGPS at the outset but we will be a full fund manager.

We have already had approaches from other LGPS funds. At the moment, when I am approached I am meeting with them and make sure they properly understand what we are doing. If they want to use us as part of their response to where the government is going, then that is fine – it is a decision within your authority to take.

Do the rumours that the government will be looking for LGPS pools of around £25bn-£30bn complicate matters?

HG: Nothing that I have seen or heard so far in terms of where the government might be going has changed what we are doing. I haven’t done the maths recently about the full scale of London assets is between £25bn and £30bn.

What is the post-plan launch? How will you grow the CIV?

HG: We have a group – I was going to say small but it isn’t that small – of section 151 officers and pension fund managers from across London boroughs. It will meet for the first time shortly and will be engaging with colleagues across all other boroughs to think about how we might want to grow the fund over time. For example – what sub funds would they want opened and in what order? We can’t do everything at the same time.

When we launch we won’t have any fixed income sub funds but it is likely boroughs will want to open some fairly swiftly. The group will consider, for example, whether that or a private equity fund is the priority. We then have to go through normal processes to consider what that sub fund might look like, which manager might run it for us and put each sub fund to the FCA for authorisation and then open it and fund it. That process will happen over the next 18 months to two years. It is an ongoing cycle. Inevitably over time some will close and others open.

It will be more challenging in this stage when there are fewer commonalities between existing investments. Without wishing to sound too trite challenges are there to be overcome. We will have to continue to put together compelling economic packages for the boroughs. It is going to be incumbent on us to put together attractive packages. If we can’t do that then I guess the boroughs won’t move. That is fine. It puts us under pressure to be efficient and negotiate good deals. We will continue to do that over time.

It is difficult to put definite numbers on any of this but our business plan in the application to the FCA is simply as broad as £5bn by the end of this financial year, £10bn by the end of next financial year and £15bn by the following financial year. If all the boroughs are sufficiently reassured and become enthusiastic investors we will overshoot the targets – but the opposite also applies.

Will you eventually move to in-house management of funds?

HG: A number of people have been saying all the London CIV is doing joint procurement and handing out to other fund managers and that is all it is going to do. However, we are delegating out to other fund managers at the outset because it is the quickest way to get to launch and get systems and processes in place. But we will be authorised to do in house management if we chose to do it in future. I am not saying we are definitely going to do in house fund management – but don’t think that just because we are adopting a delegated structure at launch that we are not able to it. We absolutely are.

Share

You may also like...

  • LGPS: Diversity is an asset and can help beat the pitfalls of “ego” among portfolio managers LGPS: Diversity is an asset and can help beat the pitfalls of “ego” among portfolio managers 24 Oct, 2019
  • LGPS ‘still overweight’ in equities despite record yearly reduction LGPS ‘still overweight’ in equities despite record yearly reduction 16 May, 2019
  • Suffolk earmarks £110m for alternative assets Suffolk earmarks £110m for alternative assets 11 May, 2017
  • Pension pools warned on governance structures Pension pools warned on governance structures 21 Apr, 2016

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 1 day ago

    FDs’ Summit experts defend councils as MPs label property investment ‘risky’: As Room151’s FDs’ Summit conference explores local government’s investment in commercial property MPs once again lable it a “significant risk to government”. Once again MPs… dlvr.it/Rr7lZx pic.twitter.com/jPvcZjDAS4

    Room151 1 day ago

    Global macro outlook: Virus versus vaccine: Sponsored article: Salman Ahmed argues monetary policy, a global vaccine rollout and fiscal stimulus are likely to put “upward pressure” on bond yields. Much like the latter half of 2020,[...] dlvr.it/Rr60nt pic.twitter.com/qsymBWmKmV

    Room151 2 days ago

    ‘Chasing yield’ not the best strategy as negative rates loom: Recent speculation that the UK may be heading toward negative interest rates prompts questions for treasury officers managing local authority funds at LATIF. Speculation is rife that the UK… dlvr.it/Rr3Mrj pic.twitter.com/wtxYAB20PO

    Room151 4 days ago

    Will new public procurement rules offer the best commercial results?: The government has issued a green paper on reforming procurement rules. Helen Randall and Rebecca Rees examine the proposals and argue they may not go far enough. The Cabinet… dlvr.it/Rqtw6T pic.twitter.com/9GiVTkL08U

    Room151 1 week ago

    The vaccine may help settle cash flows but inflation remains a risk: Sponsored article: Lauren Sewell examines the prospects for long-term borrowing as Brexit settles and vaccines are deployed against Covid-19. On the 9th October 2019 Whitehall sent… dlvr.it/RqZXCr pic.twitter.com/PzgOZOGQ0k

    Room151 1 week ago

    ESG in liquidity: Sponsored article: Gavin Haywood looks at the integration of ESG in Federated Hermes’ money market funds. Federated Hermes has over 300 public sector clients invested in our AAA rated money[...] dlvr.it/RqZX5f pic.twitter.com/E87sBXsay8

    Room151 1 week ago

    New realities of investing cash and liquidity: “What to do now?”: Sponsored article: Brian Buck looks at the “unique challenge” for cash management strategies. As investors assess the ongoing impact of the pandemic on their business, levels of cash and… dlvr.it/RqVbk9 pic.twitter.com/ZElVASmEUV

    Room151 1 week ago

    Extra finance promised by the government receives a broad welcome: Sponsored article: The financial pressures facing local authorities this year continue to pose challenges for council treasurers. While the launch of the UK’s Covid-19 vaccination… dlvr.it/RqTzTF pic.twitter.com/HCjH0pyHR5

    Room151 1 week ago

    A savvy approach to managing your cash: Sponsored article: Caroline Hedges examines the need for active cash management to achieve a higher than average return. Last year saw the already mountainous pile of negative-yielding debt around the[...] dlvr.it/RqTzMK pic.twitter.com/uP0RQYTJLt

    Room151 2 weeks ago

    Putting alternatives at the heart of multi-asset portfolios: Sponsored article: Nick Edwardson looks at the assets that provide the “most attractive opportunities”. We believe that asset allocation is the primary driver of investment returns and that the… dlvr.it/RqQ2Qt pic.twitter.com/WLBzvRRRUQ

    Room151 2 weeks ago

    Thriving in the pandemic: Avoiding the stragglers: Sponsored article: George Crowdy looks at the sectors providing opportunities for sustainable investment. Throughout much of 2020, we talked about why sustainable investing has thrived in the pandemic,… dlvr.it/RqQ2NQ pic.twitter.com/dxiPWKFsPl

    Room151 2 weeks ago

    The development of CCLA’s mental health benchmark: Sponsored article: Amy Browne examines the importance of investing in mental health in the workplace. We are living through a public health emergency in more ways than one. Physical health[...] dlvr.it/RqQ2Jx pic.twitter.com/o6yRSCX3oF

    Room151 2 weeks ago

    Brexit: What the EU trade deal means for the UK economy: Sponsored article: Hetal Mehta looks at the impact of Brexit on economic prospects. Four and a half years after voting to leave the EU, on Christmas Eve the UK finally[...] dlvr.it/RqLBDt pic.twitter.com/No62srfE8h

    Room151 2 weeks ago

    Cash dethroned: The quest for liquid yield: Sponsored article: Peter Hunt and George Carne ask how treasury departments can balance the need for yield and liquidity. The massive stimulus and waves of liquidity provided by central banks[...] dlvr.it/RqLBDj pic.twitter.com/05g6Zhu1kU

    Room151 2 weeks ago

    Richard Harbord: Delayed “capital determinations” make section 25 opinions a new crunch point: The severe pressure on local government budgets now means section 151 officers confront a tricky call on  whether they can make a judgement on the robustness… dlvr.it/RqLBDV pic.twitter.com/vTAbDKFzkI

    Room151 1 month ago

    PWLB Consultation: Analysis straight from Dickens: Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it. Free and easy PWLB (“Marley” to his friends)[...] dlvr.it/RnmwLq pic.twitter.com/yFxcPrQqEG

    Room151 1 month ago

    Room151’s top stories from a momentous year: 2020 was the year in which local government grappled with Covid-19, funding strains, controversy over borrowing rules and the threat of financial collapse. It has been an exhausting and historic[...] dlvr.it/RnlpZg pic.twitter.com/g3myNyox6J

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Croydon seeks rates deal to fund £300m TIF development
  • Next story Collective investment vehicle, rates appeals tweaked, Hackney’s fossil fuels, funding for refugees, Scotland’s tax freeze

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK