Feature | Pooling
assets for 12 local authorities, has set up its own investment team based on pre-existing capabilities in its member schemes. This includes passive assets, which were already collectively managed and half of which have been pooled. Having started off merg- ing its most liquid assets, it announced the launch of four new funds in November: a £5bn global equity fund and £1.8bn to be invested in three private credit and infra- structure funds. While Border to Coast has progressed sig- nificantly with the pooling process, the independence of individual partner funds remains a key element of the collaboration, according to chief executive Rachel Elwell. “Ultimately it comes down to where the authority for decision making rests, what is
that. A lot of the investment strategy is pro- cess driven, our role as a pool is to put in place the structure. “So, in addition to asset pooling, we have also pooled risk management, administra- tion and all associated support,” he adds. “We think our clients get far more benefit from us dealing with the big issues they face rather than deciding whether fund manager A or B deals with their equity portfolio.” The difference in approach transpires in the choice of language. While LPP and some other pools, such as London CIV, refer to the individual local authorities as clients, similar to the language used by asset managers, Border to Coast tends to refer to them as partner funds.
We need to be the positive alternative
for our partner funds to the traditional asset managers that they would have used before pooling came along. Mike Weston, LGPS Central
being delegated into the pool. We are very clear that we are developing the building blocks but allow partner funds to set the strategy.
“Decisions such as the kind of equities we are holding are made within the fund,” she adds. “If we start talking about the weight- ing of equities or bonds in the portfolio then that is our partner funds’ decision.” LPP has merged more than 80% of its assets and has launched seven sub funds, according to deputy chief investment officer Richard Tomlinson. But in contrast to Border to Coast, LPP sees the provision of investment advice as a key task of the pool. “Our delegated structure enables us to have a view of the whole portfolio. We are not just managing one bit of it; we have the whole picture.
“In the pensions world we often tend to think that we always need to meet the fund managers but there is a time and a place for
The £45bn LGPS Central pool appears to have a similar view. “We need to be the pos- itive alternative for our partner funds to the traditional asset managers that they would have used before pooling came along,” LGPS Central chief executive Mike Weston says. “That is all about being FCA-regulated, because there is a long-term focus, and benefitting from a total lack of conflict of interest. Partner funds are our clients and our owners,” he adds. While LPP, Border to Coast and Central have launched their own Authorised Con- tractual Scheme (ACS), a transparent tax structure that is an alternative to open ended investment companies and unit trusts, the £30bn Brunel Pension Partnership has appointed a third party to manage it for them. “Although we are not the operator or authorised contractual director, we are the ACS’ sponsor and investment manager. So, there is a two-way relationship going on,
34 | portfolio institutional | December-January 2020 | issue 89
which is working very well,” says Mark Mansley, Brunel’s chief investment officer. “In contrast to some of the schemes that are using outsourced providers, we are in control of the process,” he adds. “We are using FundRock as a platform because it is an expert in fund administration. It liaises with the FCA, which is not something we are experts in and so are quite happy to out- source that.” Access in turn has pursued an entirely dif- ferent approach. The £46bn pool has appointed Link Asset Services as a fund operator, meaning that it is ultimately in charge of manager selection. The pool sees itself more as a facilitator for the individual authorities, says Access chair Andrew Reid. “We are facilitating the opportunity for funds to simplify their structures, should they wish, or indeed to further diversify their portfolio.”
This central, eastern and southern shires collaboration has pooled nearly half of its assets and aims to have more than 80% of them pooled by 2021, Reid says. The pool expects to save around £33m a year by man- aging assets in a pooled structure. Wales Pension Partnership, which is the smallest of the eight pools with some £16bn of assets, pursues as similar approach to Access in that Link Asset Services provides the
pooling infrastructure and Russell
Investments advises on manager selection. The pooling process has been a lot more challenging for London CIV, which com- bines the pension scheme assets of 32 Lon- don boroughs. While the pool aims to streamline the processes between its 32 partner funds, it also received scathing crit- icism in a Willis Towers Watson report which warned that London CIV urgently needed to clarify its purpose, as the individ- ual partner funds had entirely different expectations of the pool. Some were seeing it as a fund manager, while others expected it to act as a fiduciary manager and there were those who saw it as a procurement vehicle. This highlights a key challenge for the pools. While there have been clear advan- tages to allowing each one to develop their own strategy based on the capacities that
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