As the first deadline for the pooling of England and Wales' local government pension scheme funds fast approaches, pension pool and money management executives are working hard on transition management arrangements.
The U.K. government announced in July 2015 that it wanted the 91 LGPS funds across England and Wales to pool their investments, with a goal of achieving cost savings and greater economies of scale. The deadline for these eight pools to be formally set up is April, with liquid assets expected to transfer "over a relatively short timeframe" from that date, said guidelines by the government.
Moving these assets from individual plans to a megafund is no small task: the LGPS funds are collectively investing about £218 billion ($305.8 billion) of assets. Some of the pools are further ahead in their transfer plans than others, although all have their transition management arrangements — and the associated costs — high on their agendas.
"It is going to be a major exercise," said Mark Mansley, chief investment officer at the £28 billion Brunel Pension Partnership, Bristol, England. "We are extremely conscious that, in terms of the business case for pooling, the biggest cost item, outweighing the cost of setting up (the pools), is transition."
Cost is particularly important, given that the government's key rationale for pooling was savings: In a 2014 paper, the government estimated pooling could save £660 million per year.
"There's no doubt about it — transition costs will be by far the biggest expense they'll incur in putting these pools together," said Steve Webster, senior adviser at asset management consultancy MJ Hudson Allenbridge in London.
While cost is always a consideration in transition management, there are some aspects that are specific to the LGPS pooling project.