Interview – Border to Coast
What do the non-consensus thinkers come up with? Going into this year everyone was expect- ing to have a challenging time. Volatility may be higher and earnings will gradually fall, but things did not turn out that way. Obviously, some non-consensus thinking was good for us and I am happy to see that, year-to-date, our public market fund strategies continue to be ahead of their benchmarks. We are also engaging more on longer-term secular themes. This month we had a great call with a large UK asset manager, who talked about integration of artificial intelli- gence (AI) in their research process. It is important for us on the investment and infrastructure sides of the business to get to grips with some of the technology that is coming through as this is happen- ing at a rapid rate. I don’t know if AI is going to be any bigger than the dotcom period from 20 years ago, but it could be material. Getting to grips with that is important.
Have you shifted your portfolio as a result of these thinkers? We have updated our research and have moved to a global sector model. Before we had an individual regional approach, such as Europe and US, but now it is a more formalised global sector approach. Given the pace of change and complexity we are seeing in the technology sector alone, this is important. We now have experts who are deeper in this space and are not just reacting to it, and I want to see our private equity PMs interacting with our equity researchers on key themes. To be clear, Border to Coast was function- ing very well before I arrived. But this is about ensuring the investment team comes together more to debate topics from different angles.
You have highlighted how you are exceed- ing the original ambitions for pooling, hav- ing pooled 83% of your 11 partner funds’ assets. What’s next?
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The main reason we have reached 83% is that we didn’t launch a fund and then market it. From day one, we have worked to understand the collective needs of our partner funds and develop the proposi- tions on their behalf. Real estate is the last large scale asset class for pooling which we are focused on this year and next. As chief investment officer, I am not here to expand the assets, I’m not obsessed with getting to 100% – it’s about getting the best performance on those assets we manage today.
If you will never get to 100%, what do you make of Jeremy Hunt’s requirement for LGPS funds to pool all of their assets by 2025?
There can be practical reasons why you can’t pool 100% of the assets – legacy pri- vate markets and micro-local investing are examples. We are focused on how we manage the assets as well as possible. What I would say though, is that pooling is delivering real value for our partner funds – no individual UK pension fund could match the scale and scope of what we are able to do. In coming together, our partner funds have highlighted the bene- fits of a collective approach.
But can you understand why some funds earlier this year wanted to leave their pool? I’m not going to talk about what has hap- pened elsewhere – our philosophy is built on a common purpose and that has worked out pretty well.
Border to Coast’s annual report revealed that collective net savings are on track to reach £340m by 2030 – how are you achieving this?
This is a standard methodology from the Department for Levelling Up, Housing and Communities that all funds need to complete. A large part of our savings are driven through our private market pro- gramme, which is currently £12bn. As the years progress, the savings will increase as we expand new propositions.
Cost management is important but over time we would prefer to focus on generat- ing good excess returns will have a more material impact for pension funds, and the wider value we deliver – whether through our collective voice or helping our partner funds in areas such as the journey to net zero.
Why are you focusing on private markets? It is important that we have significant growth engines. Structural diversification away from equities into private markets has been quite material over the past five to 10 years. This is a key element of our partner fund strategies and we have built a great in-house team to allow us to deliver it on their behalf.
What do you make of the government’s desire to increase pension fund commit- ment in infrastructure and the leveling up agenda?
Investment strategy obviously remains the responsibility of our partner funds. That said, we already support them to invest in these areas, and we’ve just announced our UK Opportunities strat- egy. This will launch next year and will
Driving change in the real world is the best way to manage the risk of climate change, and engagement is fundamental to this.
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