US fund manager American Century is planning to launch a special local government pension scheme (LGPS) share class, with fees for all LGPS investors reducing as more is invested in the fund.
American Century Investments’ CEO International, Michael Green, said: “We are proposing an innovative solution to demonstrate greater efficiencies in the investment area. We believe that this solution would assist the LGPS in addressing efficiencies around cost, administration, procurement and governance.” The move comes as the government is calling for merger and consolidation options for LGPS funds to be considered, in order to reduce administration and management costs.
No date has been set for the introduction of the LGPS share class, as it is awaiting regulatory approval, but fund managers are hoping it will be soon. The share class will apply to two funds, a global growth equity fund and a concentrated global growth equity fund. Green commented: “Global equities continue to form a key part of most local authority pension portfolios and for this reason we believe this proposal is relevant.”
Under the concept, the fees paid by LGPS members will be governed by the total assets invested by LGPS funds as a whole. For the first £30 million of LGPS assets invested in the American Century global growth SICAV, a fee of 49.5 basis points (0.495%) applies. For the next £30 million, the fee drops to 45 bps and to 40.5 bps for the next £100 million. For over £160 million in LGPS assets, the fee is 36 bps. In an illustration of the impact of this fee structure, American Century said that for total assets invested of £50 million, the effective investment management fee would be 47.7 bps. With total assets of £100 million invested, this would fall to 44.55 bps and for £200 million, the effective fee would be 41.63 bps.
At present, the standard institutional share class has a management fee of 75 bps and other fund expenses are capped at 20 bps, while the minimum investment is £1 million. The funds aim to achieve long-term capital growth by investing in a concentrated portfolio of large companies globally.