Three major northern local authority funds, the Greater Manchester Pension Fund, the Merseyside Pension Fund and the West Yorkshire Pension Fund, which have combined assets of around £35 billion, are in talks with the London Pensions Fund Authority (LPFA) and Lancashire County Pension Fund (LCPF) over asset pooling.
The LPFA and LCPF are launching a £11 billion asset-liability management (ALM) partnership in April. The government has said local authority funds should pursue asset pooling to form around six funds of around £25 billion each. LPFA and LCPF have said that they recognise the need to expand their asset pool to meet the government’s criteria. They also said that they are in discussions with a number of other local authority funds, including the Royal County of Berkshire Pension Fund, about either the ALM partnership or direct investment in infrastructure.
Under the arrangements being put forward by the LPFA and LCPF, an authorised contractual scheme (ACS) will be managed by an FCA registered operator with strong oversight from the participating pension funds. The two funds say that they anticipate FCA approval by the end of March 2016 and intend to start pooling all assets from April 2016. The funds say that the structure has been designed to enable other funds to take part and also to preserve funds’ local accountability and ability to make strategic decisions. The ALM partnership is also designed to accommodate illiquid assets, such as infrastructure and property, held via special purpose vehicles. Both funds currently invest directly in infrastructure; the LCPF has invested in energy infrastructure and social infrastructure, while the LPFA has collaborated with the Greater Manchester Pension Fund on a £500 million joint infrastructure investment fund.
In terms of potential cost savings from pooling, the LPFA and LCPF gave conservative estimate of investment management fee savings of around £30 million over the next five years. They also said they expect to see increased investment returns of £20-30 million. The two funds said that they have spent around £1.5 million on start-up costs over the 18 months that they have been working on the pooling arrangement.