London Pensions Fund Authority and Lancashire County Council Pension Fund, Preston, England, announced a partnership that would see them pool about £10 billion ($15.7 billion) of assets to save costs, improve performance and increase access to illiquid investments, said Susan Martin, CEO at LPFA.
Under the proposal to create an asset and liability management partnership, each pension fund would retain its separate identity and local accountability. The partnership could eventually cover all areas of activity involved in running the pension funds, including pension administration.
The proposal — one that Ms. Martin said formed the basis of LPFA’s response to a recent government request for comments into potentially pooling all or parts of the 89 local authority funds in the U.K., representing £180 billion of assets and £230 billion in liabilities — is to create a commonly managed, jointly invested pool of assets. This will be overseen by a Financial Conduct Authority-registered entity, which would be created by the two funds.
The proposal involves managing not only the respective pension funds’ assets, but “also looking at the management of liabilities,” Ms. Martin said in a telephone interview. “As pension funds, our responsibility is to have the cash to pay members’ benefits.”
The proposal is in the very early stages, Ms. Martin said, but the idea is that the partnering authorities create an FCA entity to oversee the pooled assets, using best governance standards, including the FCA’s.
“The idea is that we would appoint a joint committee, and they would be responsible for asset allocation. (Asset allocation would be) delegated to an executive responsible for that execution. It is in the very early stages — (we are) working together to create a solution that is the best fit,” Ms. Martin said.
The benefits would include scale — both reducing costs and allowing the pension funds to run more investments in-house — improved governance and knowledge.
“With scale, we can access asset classes usually accessed through funds of funds or other opportunities,” she said referring to the collective assets of the 89 local authority funds. Ms. Martin said there are large, foreign institutional investors meeting with the U.K. government to invest in U.K. infrastructure and other opportunities suitable for large pools of assets. “That is great, but there is £180 billion here, and we would like to be at that table.”
LPFA has £4.9 billion of assets. Lancashire County Council Pension Fund has £5.2 billion of assets.