Discussion – LGPS pooling
cover infrastructure, real estate, private debt and private equity.
PI: Cutting costs is a benefit of pooling, but have you discovered any additional benefits? Elwell: With scale comes a collective voice. I have joined the Investment Associa- tion’s board, which is, in part, a recogni- tion of that. Historically, asset managers have been strong while asset owners have been splintered. If you bring pools together you get a stronger voice and a more sophisti- cated buyer, which means that relation- ship between asset owners and asset man- agers is shifting.
If you have strong asset owners, then you will have strong asset managers. Chappell: Collectively, as pools we are large institutional investors, which gives us buying power and a big voice. We use that voice in the responsible investing space.
Benefits of scale enable us to move quickly, particularly when it comes to stewardship where voting with one voice gives us more power.
An advantage that we will see in the fu- ture is on the journey to net zero. That journey is going to be easier if we are pull- ing in the right direction. We will make strides more quickly than just being a small pension scheme. The benefits of scale are going to be enormous. McDonald: We are procuring advice to position what we do on RI, be it the Stew- ardship Code or climate-related disclo- sures. These issues are coming down the line and expectations of institutional asset owners are going to increase. Weston: One of the benefits of cost saving is to improve investment performance, which is the most important thing that our partner funds need to pay their pensions. Then there is resilience. You now have 60 people running your assets, so there is much better resilience and support for the pension scheme.
PI: Aside from stewardship, are you guys working together and sharing ideas? Chappell: As pool CEOs, we catch up reg- ularly to share ideas and had a few meet- ings to compare notes at the beginning of Covid. Aside from that, we have collabo- rated on investment, tax savings, fee sav- ings and sharing information on private markets.
There is going to be more collaboration across the pools, especially as we move out of transition and into business as usual, where in managing the portfolio more opportunities will arise, especially with RI. There is no competitive advantage for a pool, so it is not an intellectual property decision. This is about doing what is right. Elwell: Pooling has never been done in the UK before, so learning from each other is important.
If our investment teams work together, we can generate cost savings because of the LGPS’ scale.
There are many ways we are working together. The CEOs get together regularly but so do the COOs and chief risk offic- ers. We are trying to encourage the spirt of collaboration because it is part of how the LGPS works. Ultimately, we are responsible for run- ning public money. This is about how we get the best for the taxpayers and scheme members. That is by sharing and working together. McDonald: Collaboration is happening and happening in a beneficial way. ACCESS has a different model to the oth- er pools in this discussion but still joins the chief operating officer discussions. Because of the way ACCESS procures an operator, we do not share the issues or challenges of the other pools, but there are commonalities. We have had conver- sations with COOs over Brexit and remote working.
The issues may be hard and soft in terms of investment, but they are relevant to all of us and the more we talk, the more we understand, the more we learn.
50 | portfolio institutional December–January 2021 | issue 99
Weston: We are fortunate that the pools were set up to serve their partner funds. So, we are not in competition with each other, which means we can collaborate. We all deal with similar issues and experi- ence the same challenges, as a group we constructively talk about what is happen- ing with pooling and how it moves forward.
PI: Some of you have launched funds and awarded mandates during Covid. How did you approach that process during a pandemic? Elwell: At the start of the first lockdown we launched a £2.5bn Investment Grade Credit fund and in the Autumn a £2bn Index-Linked Gilt fund. We also appoint- ed multi-asset credit and emerging mar- ket equity managers.
It required us to think carefully about the controls we have and how we can make sure we are still doing those in a virtual environment. So, there has been more contingency planning and testing. It requires more thought and is harder, but it is not that you cannot do it. Just be aware of the risks and how you are going to manage them differently when you are in lockdown. Chappell: We launched three funds before the US election. It was harder, not least because when you are selecting managers you cannot meet them face-to-face or go to their building a get a feel for their cul- ture. We are looking at long-term partner- ships, building something for the future. So, it takes longer. McDonald: Launching funds requires a different approach. Remote and virtual working is not the look and feel of how we would have done transitions in the past, but the industry has stepped up. Weston: Part of pooling was to do invest- ment in a different way. Covid has also forced us to do investment a different way. This is just another challenge to overcome on the pooling journey. There is a commitment from us and our partners funds to continue doing what we
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