LGPS – Feature
asset owners and asset managers. “Pooling more generally in the UK has started to address this imbalance, by ensuring asset owners have a stronger voice and the professional expertise to work with asset managers to develop propositions that best suit our needs.” Concluding, Elwell says: “Over the next five years we have a real opportunity to build the capabilities that will enable Border to Coast to realise the full benefits of pool- ing on behalf of our partner funds as a mature, long-term, innovative and responsible multi-asset investment business.”
CASE STUDY THREE
A united response: The case of Brunel Pension Partnership
Pooling has no doubt created a new way of working and with it new challenges. “It takes a lot to make pooling work, but it is impossible to even make a start without a close partnership,” says Denise Le Gal, chair of Brunel Pension Partnership. “Each of our clients already had extensive investment experience and expertise managing their LGPS fund for their members. So, for our clients, pooling meant suddenly working with nine other regional funds via a pool to find shared solutions.” Le Gal calls this “a game changer” adding: “To make any part- nership work, there needs to be transparency, trust, collabora- tion and a genuine respect to see all points of views engaged to find a mutually beneficial solution.”
It does work effectively – because all groups pull their weight. “Our clients chose to make it work by engaging fully and co- ordinating to develop shared investment funds that reflected common goals,” Le Gal says. “It’s for that reason that we will have transitioned around £25bn to listed markets funds by this summer,” she adds. “That’s out of total expected client transi- tions across all asset classes of around £35bn – and we were only founded in 2017 and given FCA approval in 2018.”
Strong unity
The rapid transition of assets was only possible because Brunel’s clients already had a strong sense of unity, Le Gal says, with most of them in the southwest and already co-ordi- nating in lots in ways – and because they all had their eye on the endgame: creating a new suite of funds that offered access to a greater range of asset classes and risk profiles. “While also providing us with the added clout – in assets under manage- ment terms – needed to reduce fees and hire the best manag- ers to ensure the best chance of strong performance,” she adds. Also vitally important, was that they also had a strong, shared commitment to responsible investment, aspiring to bring change to the wider industry, especially on climate investing. “This is a priority issue for our clients and that commitment has never wavered over time, only increased,” Le Gal says.
Challenges and benefits
The biggest initial challenge was just meeting government deadlines with a small staff.
“Later on, it became ensuring the safe transition of assets – with a small staff,” Le Gal says. “All the while, of course, there was a lot of detail to communicate to all our various stakeholders.”
There has nevertheless been a real benefit. “The biggest bene- fit from pooling has been establishing a stable, regulated entity that can manage risk and build portfolios to achieve perfor- mance ambitions and thus deliver good financial outcomes for our client funds,” Le Gal says, adding: “Creating something new has also enabled our wider partnership to show what it means to be a responsible asset owner.”
CASE STUDY FOUR An alternative narrative
The LGPS model is not popular with everyone. A consistent critic of the LGPS pooling model since its inception has been Michael Johnson, research fellow at UK think tank the Centre for Policy Studies. Johnson believes that the measures announced by George Osborne would not deliver the much-needed improvements in infrastructure spending – but that is only part of the problem. “What we are witnessing is mere tinkering, masking the fun- damental truth that the LGPS is not sustainable,” Johnson says. As an alternative, Johnson thinks the government should decon- struct local government pension schemes and use their assets to seed an infrastructure-focused sovereign wealth fund. This would spread the benefit of the assets across the whole of society, Johnson says. “We all use airports, roads and railways. Thereafter, LGPS obligations should be met on a pay-as-you-go basis, in the same manner as almost all other public sector pensions.” Expanding on his criticism, Johnson notes: “The LGPS has become a bloated, inefficient self-serving empire, extremely costly to operate and, not unrelated, delivering below-market returns. It remains mind numbingly inefficient: fund manage- ment fees of more than £1bn per annum, for what is, ultimately, a single occupational pension scheme.” Johnson therefore asserts: “Taking the LGPS’ assets ‘in-house’ would provide the government with a unique opportunity to establish a sovereign wealth fund that could, over time, become a global centre of infrastructure investment expertise. “It should embrace simplicity and transparency and be subject to forensic independent governance,” he adds. “Implementa- tion would, by necessity, need to be spread over years to pro- vide sufficient time for orderly divestment and the appraisal of potential projects for investment.”
Issue 104 | June 2021 | portfolio institutional | 49
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