Interview – Local Pensions Partnership Investments


You have been sitting in the CIO’s chair for 16 months now. What have been the big- gest challenges you have faced so far? After becoming CIO, I spent 10 days in the office before we were sent home to work. That in it itself was fairly challenging. We had to start thinking about how we would adapt to the Covid world: how do we operate? How do we maintain the cul- ture? How do we communicate? How do we work remotely? Do we need to change anything or just keep going? It was a huge challenge but we got through it. Beyond that, it was the longer- term stuff about how we evolve as an organisation and move on in our journey. The reality is that the world, people, organisations and markets are dynamic – everything is changing. There is always the temptation to make your mark like a 100-day plan undertaken by the US presi- dent and throwaway what has gone before. For me, it was a case of evolution – a con- tinuation of where we have been on our journey. We made some subtle tweaks, but not wholesale changes.


Although you took over as CIO last year you have worked for LPP Investments since 2017. Did that help when making these decisions? Absolutely. If I came in cold, it would have been an absolute nightmare. The continuity was critical because of what happened with Covid. It also helped that Chris [Rule] moved from CIO to chief executive. We have a good understanding of how we both work and think about things as well as having a clear understanding of who does what. Although there is a difference in manag- ing a third of the investment team and directly managing the whole thing, peo- ple started reporting to me who had previ- ously been my peers.


How are you managing LPPI’s eight in- house funds?


14 | portfolio institutional | June 2021 | issue 104


To fulfill the pooling agenda, we had to pool client assets and integrate them into a common investment platform. You could do that by putting the assets into a multi-asset fund – but you lose the ability to asset allocate for clients. The route we went for was defined by asset class: global equities, credit, fixed income, infrastruc- ture,


real estate, diversified strategies,


absolute return and private equity. We decided to go down the traditional, vertical asset class definitions route on a global basis. It is easy to define and to communicate. We run each of those asset class verticals as standalone funds, but they are designed as a coherent whole for client pension schemes. They are designed to be build- ing blocks, so clients can pick and choose to build a coherent portfolio.


You have made a big commitment to real estate. What is the attraction here? The portfolios we run are different from defined benefit (DB) corporate pension schemes, which is more of a risk manage- ment, meet the liabilities type approach. Whereas we run a portfolio for return, and the objective is also to minimise future contributions because they come straight out of the employer/state purse. There are two things we have to achieve for clients: one, to build long-term asset value and pay pensions in the future. The second is paying pensions today. So, we build portfolios for that matrix and each of the asset classes we have play a role in that. Real estate is useful because you have a degree of inflation linkage and so these are assets that, hopefully, will keep pace with inflation to provide that long-term capital bucket for paying pensions. Take commercial real estate. You tend to have inflation in there, it is a real asset, so if inflation rises it should maintain its real v alue and is relatively yieldy, so you are taking income to pay pensions today. It is an asset that works well with stakeholders and clients like ours.


The big game changer is net zero, ESG and responsible investing.


And like most investors, we are trying to do this in the most efficient way. With real estate you have a home bias towards it: because one, there are tax efficiencies, and two, you can go direct to the assets, so there are minimised costs and fees. Our clients are only exposed to UK infla- tion, so owning UK assets that are genu- inely exposed to UK dynamics is helpful. Whereas most stocks are global – the FTSE100 is not a barometer of the UK, it is a global index.


Other than real estate, are there other asset classes you find appealing? To me, global equities is the ultimate stra- tegic asset class. Whenever the world hits a problem, solutions tend to be found and they tend to involve printing money and borrowing money: things that tend to, in the long term, support the value of equities. At the other end, the ultimate tactical asset class is credit. It is so complex with such banded outcomes. At certain points in time, you can look at pockets of credit and go “wow”. You essentially have high yield or equity-like returns with invest- ment grade risk. No other asset class offers you that opportunity set, where risk and reward can be so skewed in your


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