Feature – LGPS
ticularly around climate change. “Our dedicated, and fully inte- grated, responsible investing team are delivering tangible pos- itive outcomes such as Barclays to become net zero by 2050 following shareholder pressure, our plus £2bn launch of a cli- mate factor fund, meeting with the vice president of Brazil on deforestation and climate risk reporting to partner funds.”
CASE STUDY TWO Border to Coast: more than cutting costs
On how George Osborne’s infrastructure LGPS pooling ambi- tions have shaped up, Rachel Elwell, chief executive officer of Border to Coast, identifies some fundamental shifts. “We’re already delivering for our partner funds. With our scale and in-house expertise, we have been able to open investment opportunities, which smaller investors may have previously been unable to access in an effective manner. One example of this is our recent co-investment infrastructure deal in renewa- ble energy.” However, standing back from Osborne’s criteria, Elwell makes the point that simply creating investment opportunities isn’t really sufficient. “As long-term investors we believe that inte- grating ESG factors into investment decisions delivers better investment returns.
“While ESG reporting has improved in public markets, there is a need to enhance standards, transparency and how we meas- ure ESG risk, opportunity and performance in private markets. It’s for this reason we are driving ESG reporting standards in private markets.”
On reducing costs, Border to Coast has made real strides. “We have been successful in delivering savings,” Elwell says. “For example, when we launched our £5bn Global Equity fund, we negotiated a £3.5m a year cost saving for our partner funds.” Expanding on this, Elwell adds: “And, most recently, in trans- ferring to one of our internally managed fixed income funds, one partner fund alone saved more than £700,000 a year. We have also enabled our partner funds to make savings when effecting their asset allocations, arranging for ‘crossing’ oppor- tunities with one such opportunity alone saving £3.5m in trad- ing costs.”
More than just savings However, for Border to Coast’s partner funds, pooling was always about more than just cost savings or making it easier to access infrastructure investment opportunities, Elwell says. “We are building a resilient and sustainable organisation with strong in-house expertise – including in portfolio risk, invest- ment research and responsible investment,” she adds. “With these in place, combined with our focus on developing our people, we are creating a flexible and open to change culture
48 | portfolio institutional | June 2021 | issue 104
that is equipped to develop new capabilities as the needs of our partner funds evolve.” This in turn means greater collective strength. “Thanks to the stronger voice that pooling brings, we can also have more influence on behalf of our partner funds in areas ranging from active stewardship, cost transparency and ESG reporting stand- ards in private markets,” Elwell says.
There are, nevertheless, challenges with the whole process. “I don’t think we can underestimate the challenges of pooling,’’ Elwell admits. “In our case, 12 separate partner funds came together and agreed a common vision and strategic priorities. Alongside this, we established and built an FCA-regulated asset management company in Leeds – and we’re now respon- sible for managing more than £25bn of their assets.” In this way, listening to their partner funds has been funda- mental, Elwell says. “For example, last year we held 127 cus- tomer meetings to listen and develop key areas such as fund design, a common responsible investment policy, performance and accounting reporting templates and a governance frame- work.” The partner funds now nominate two non-executive directors to sit on the board.
Robust decisions Elwell also appreciates how the partner funds supported the group in its journey. “Early on they recognised the importance of compromise to make pooling work. While compromise could lead to the lowest common denominator prevailing, due to our open and honest dialogue, I believe it has resulted in more robust decisions that will deliver greater value for partner funds and stand the test of time.”
Looking back on what has been achieved, Elwell observes two successful developments “First, we have built a company on solid foundations of clear cultural values and strong risk and governance frameworks. This gives us the ability, flexibility and
confidence circumstances.”
The second is the investment opportunities that have been developed. “To date we have launched five equity funds, two fixed income funds, as well as investments in infrastructure, private equity and private credit. We are developing with our partner funds a range of other investment opportunities, such as real estate.” But Elwell stresses, the main success of pooling is this: “We have maintained a strong and collaborative relationship with our partner funds based on trust and our long-term vision. This is fundamental to our long-term success and the impor- tance of this has been amply demonstrated throughout the pandemic.”
In addition, Elwell highlights another argument in favour of pooling: one that deals with in an imbalance emerging between
to manage change and adapt to new
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