London local government pension schemes to pool £25bn

The UK chancellor’s wish for the 89 investment funds that make up the Local Government Pension Scheme to be pooled into just five or six funds has moved a step closer.

27 Nov 2015 London local government pension schemes to pool £25bn

The UK chancellor’s wish for the 89 investment funds that make up the Local Government Pension Scheme to be pooled into just five or six funds has moved a step closer.

London Councils, which represents the city’s 32 boroughs, has received regulatory approval to begin pooling the £25bn of assets belonging to disparate pension schemes.

The belief is that the launch of a collective investment vehicle for the pension funds will shave up to £3m off their costs of investment.

The move is the first of its kind for the UK pension market. Local authority schemes have come under pressure to collaborate after chancellor George Osborne invited proposals on cost cutting and investment pooling last year.

Hugh Grover, chief executive of London CIV, the name given to the collective investment vehicle, called the launch a “landmark move” in the drive for collaboration among the 89 local government pension schemes of England and Wales. He said it would provide significant cost savings for London’s local authority pension schemes.

“Ninety different asset managers are currently used across the 32 local authority pension funds. There is no way we will use 90 fund managers going forward. It is a given that some fund managers will lose out; I expect us to use 20 to 30 asset managers in future,”

Allianz Global Investors is one of the first investment managers to be appointed by London CIV and has been selected to manage the vehicle’s first sub-fund, an active global equity product.

The fund will launch with £510m of assets. Contributions will come from three London boroughs, including Wandsworth.

Philip Dawes, head of UK institutional at Allianz Global Investors, said:

“This sub-fund has been two years in the making. We are very excited to be the first to go live.”

Mr Grover said London CIV will open a further eight sub-funds before the end of March next year, which will see around £6bn of assets flow into the collective investment vehicle. Three of those sub-funds will be run by BlackRock, Baillie Gifford and Legal & General Investment Management.

Mr Grover said: “The creation of London CIV will enable the London authorities to achieve unprecedented economies of scale and enable access to opportunities for investment in alternative asset classes that previously may not have been easily achievable for individual funds.”

Jules Pipe, chairman of London Councils and the mayor of Hackney, added:

“London local government has been leading the way in developing proposals for greater collaboration across the Local Government Pension Scheme.

“I am extremely proud of what has been achieved by everyone involved in setting up London CIV, which is already delivering significant financial benefits for the boroughs, the pension scheme members and taxpayers.”

Data released last month showed local government pension schemes in England have significantly under-reported their investment costs by at least £240m. Fund managers were paid £689m by local authority pension schemes in the year to the end of March.