Money managers and consultants are adding resources, aiming to ensure they'll have the expertise to capture business as nearly £200 billion ($289 billion) in local government pension scheme assets are pooled into at least six British wealth funds.
Specifically, a number of industry players say they have reinforced or refocused efforts on the 89 England and Wales local authority pension funds.
Last month, JLT Employee Benefits named Andrien Meyers to the new role of senior investment consultant. Mr. Meyers has been treasury and pensions manager at the London Borough of Lambeth, whose pension fund has £1 billion in assets. At the time, a spokeswoman said the appointment reflected the firm's ambition to expand its investment consultant business in the public sector.
Mr. Meyers will join the firm later this year.
JLT has been expanding teams — both through recruitment and internal transfer — to “ensure we have the resources to assist not just our existing clients but the new pools themselves as they are formed,” said Kieran Harkin, Manchester, England-based head of LGPS investment at the firm.
England and Wales' LGPS funds are due to submit final details in July on how they intend to pool their assets into at least six British wealth funds, under changes announced by the U.K.'s chancellor for the exchequer, George Osborne, last year. The idea is to save millions of pounds in costs by pooling these assets into new funds — each with at least £25 billion of assets — and to increase allocations to infrastructure.
Pension fund executives, their money managers and investment consultants, will have to strike a careful balance in order not to lose sight of the diseconomies of scale. One risk is of capacity issues, particularly in some alternative investment opportunities that greater governance structures will bring to LGPS funds. Hiring and firing of money managers could also become more difficult, warned Simon Hill, London-based chief investment officer and senior investment consultant at Xerox HR Services, formerly known as Buck Consultants.
“From the point of view of markets, any conglomerate of power — particularly where there is political interference — is worrying,” added Mr. Hill. Any big moves by these huge pools of assets could distort markets, particularly in liquidity- and opportunity-constrained asset classes such as infrastructure. “Managers often report to us that they are waiting to find the right assets — mezzanine debt, emerging markets debt — they can be very illiquid markets, and managers may feel pressures by the greater weight of assets that they are responsible for, to maybe (dilute) their criteria to get invested,” he said.
The move has been identified as both an “opportunity and a risk” by sources in money management, because one of the aims is to reduce management fees across the pension funds.
“It is a very challenging time for both LGPS (funds) and asset managers, but there are some great opportunities on both sides to really work in partnership together, for the benefit of the pension schemes,” said Euan MacLaren, head of U.K. and Ireland institutional business at Natixis Global Asset Management in London. The money manager, which works with 11 LGPS funds across five affiliate companies, representing about $2 billion of assets, at the end of last year reorganized the institutional business, “partly to take account of what the LGPS are going to be doing,” said Mr. MacLaren.
All LGPS clients were transferred to Will Fox-Robinson, director, U.K. institutional business with responsibility for LGPS, to give clients a “dedicated route, consistent understanding and message of what we can work with them on,” Mr. MacLaren said. “By having someone dedicated to that area, we are able to have the knowledge across the board of what each pool is doing, and the challenges for each.”
Mr. MacLaren said the firm is not expanding the team, but Mr. Fox-Robinson can draw on Mr. MacLaren and other NGAM resources.
Asset pooling will give money managers the opportunity to work with LGPS clients to which they have not had exposure previously.
“We think pooling is an opportunity for us, as an organization, to deliver more to LGPS clients,” said David Curtis, London-based head of U.K. institutional business at Goldman Sachs Asset Management. He said there is an opportunity for greater provision of risk technology, broad insights, and other resources. “We have increased our resourcing for our LGPS business, and we are being very prominent in terms of activity and seeing people — we are being part of the discussion. We hope it is good for the industry and think there is more we can deliver to (a pooled set of schemes) than to a more fragmented market. For us it is certainly an opportunity to engage with our current clients and schemes where we have less established relationships to help them consider ways to meet their investment objectives for the future.” GSAM has $1.25 trillion of assets under supervision.
