Interview | Mike Weston
ness and efficiency that they are operating at. We also must deliver on the client service promise that we have in terms of involving our clients and communicating with them, making sure that they are comfortable with what we are doing. Secondly, maintaining the momentum. A lot has been achieved in the first year but there is still a lot more to do. We need to build on that great start and all the effort that was put in to get Central up and running. Part of that is launching new funds to pro- vide the range of asset classes that our part- ner funds need to execute their full strate- gic asset allocations through Central. As individual funds remain responsible for the strategic asset allocation to meet the lia- bilities, we need to provide the fund suite of funds to enable them to deliver the returns they need and pay their pensions. We also have a strong recruitment plan for this year. We are hiring additional people and developing our existing people, looking at making sure everyone gets the training that they need and put succession plans in place. So it is about strengthening, develop- ing and growing our team.
It might sound dull, but it is the nuts and bolts, nitty gritty of growing an organisa- tion that is still very new in its own right.
We have a responsible investing team here that has put a responsible investment and engagement programme in place. That is now operating at the scale of the pool, so it is having more influence. We have over 50 people and have recruit- ment plans for this year. We are making good progress on the pool- ing programme.
One of the reasons behind pooling is to increase investment in infrastructure. Considering your previous role at Pen- sions Infrastructure Platform, do you have any plans in this area? Yes, we have plans. Historically our partner funds have had a range of allocations to infrastructure which have included a range of exposures in direct assets and high returns. We have been working for a while on an investment vehicle that will meet all of their needs. We are making good progress on that and expect to launch it in the summer.
You have a few equity funds. How are they being prepared to face more of the volatility that we saw last year? We have a global equities fund, an emerg- ing market equities fund and we are work- ing with West Midlands Pension Fund on a
We strongly believe in collaboration with other pools.
At what stage is LGPS Central in its pool- ing plans? We are making good progress. The funds that make up Central pool have £45bn of assets, so having roughly £20bn of that being managed or advised on by Central is a good percentage. We are looking to grow that as we go for- ward, but it is a good start. We have delivered cost savings that have been above our initial expectations on the funds we have launched so far. We will look to build on that.
20 | portfolio institutional | April 2019 | issue 83
sustainable equities fund. If you look at the partner funds’ asset allo- cation, they have a large proportion of equi- ties in their portfolios, so it is not surpris- ing that equity funds are at the forefront of our fund launches.
It is worth reflecting that our partner funds are open defined benefit schemes with long-term liabilities, so we take a long-term approach when designing and implement- ing the funds that we launch for them. So we focus more on how managers are impacted by volatility and how they respond
to short-term volatility and critically what it means for their ability to deliver on our tar- geted long-term risk-adjusted returns. We are focused on long-term returns. We are not trying to do short-term market tim- ing and we do not want managers that are looking to do short-term market timing. It is more important to us to know and understand how a manager’s processes work and what they do when volatility comes along and how that does or does not impact their internal processes.
You are launching an emerging market equity fund later this year. How is that progressing? We have worked with our partner funds and have selected BMO, UBS and Vonto- bel to manage that fund. We are progress- ing through the final stages of due dili- gence and working on detailed transition planning.
What is your strategy in private equity? We launched the first fund on our private equity platform on 31 January. The current private equity fund has two sleeves. It has a primary fund investment sleeve and a direct investment sleeve.
The strategy is to mix the two styles of the investment, which allows us to average down on the high investment costs that are typically associated with private equity investment and therefore enhanced risk- adjusted returns. That is the 2018/19 vintage.
Our strategy is to launch annual vintage funds with the strategy for each vintage being set according to the prevailing PE environment at the time.
When we go through the process of launch- ing the next vintage we will look at what is going on in the market. We have an in-house private equity team of four, which means we can stay close to the market and tailor that successive funds in a way to max- imise risk-adjusted returns. Having a dedicated resource within LGPS Central means that we can help our partner funds move away from the more expensive fund of funds-type investment.
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