Lothian Pension Fund, Edinburgh, will apply for authorization from the Financial Conduct Authority to run some of its own money and to ensure its investment management operations "are comparable with those in the private sector," said a spokeswoman for the fund.
The move, which aims to improve governance of investments that are managed in-house, means the pension fund will establish a separate corporate entity to operate these investment functions. That entity would then apply for FCA authorization. The announcement follows a review by Mercer Sentinel of the team's operational procedures.
The £4.1 billion ($6.8 billion) pension fund's nine person investment team manages more than 60% of the assets in-house. According to a news release, the pension fund manages £2.8 billion of asset in-house, and FCA authorization will help to ensure operational best practice. “It should also provide our stakeholders with comfort that our controls are of a high standard,” the spokeswoman said in e-mailed comment.
These assets run in-house include regional and global equity allocations, as well as alternatives.
The spokeswoman did not respond directly to a question regarding any intention to run third-party assets following FCA authorization. She wrote in an e-mail: “The decision to seek FCA authorization is focused on improving governance for the benefit of the Lothian Pension Fund, Lothian Buses Pension Fund and Scottish Homes Pension Fund.”
“This is an important step for the fund in making itself responsive and prepared for the challenges ahead in public-sector pensions in the future,” said Alastair Maclean, director of corporate governance for the City of Edinburgh Council, in a news release. “The review has provided comfort that our internal investment operations are well structured and effective. It has also provided direction to further improvement in our controls if we are to gain authorization from the Financial Conduct Authority.”
The spokeswoman said the pension fund could not confirm when it will be submitting its application to the FCA, but that it is “something which we are actively working toward,” she wrote.