The U.K. government on Thursday launched a comment period on the Local Government Pension Scheme's proposal to pool certain LGPS assets into two common investment vehicles.
The 89 pension funds in the LGPS have combined assets of £178 billion ($300.2 billion), covering 4.7 million participants.
The pooling proposal would move all listed assets to passive fund management, through a common investment vehicle. The government said this move would produce an estimated annual savings of £420 million. This proposal is supported by consultant Hymans Robertson's analysis of LGPS' performance over the 10 years ended when March 31. The analysis showed that “listed assets such as bonds and equities could have been managed passively without affecting the (LGPS) overall performance over the last 10 years.”
Similarly, moving to a common investment vehicle for alternative assets, rather than using funds-of-funds arrangements, would save a further £240 million per year.
The analysis, requested by the U.K. government, also found that active management was costing LGPS £710 million per year. The document said the £420 million in savings from a move to passive management would break down as a £230 million reduction in investment fees and a £190 million savings in transaction costs. These savings, the proposal said, could be achieved within one to two years.
The comment period runs over 10 weeks, to July 11. The proposal is available on the U.K. government's website.
Hymans Robertson's analysis found that a single asset pool offered savings of £2.8 billion over 10 years, and £6.6 billion over 20 years.
The consultant also considered the formation of five to 10 collective investment funds, rather than just one large pool of assets, and creating five to 10 merged funds.
The consultant was not asked to make recommendations in its report. However, it said: “Full fund merger (of assets and liabilities) could achieve similar savings in investment costs as asset pooling, but would take longer, delay emergence of benefits and would have other implications (outside) the scope of this project.”
