The London Collective Investment Vehicle (CIV) is an FCA Regulated fund manager that represents the pooled investments of 32 London Local Authority Pension Funds (including the City of London). It was originally set up as a collaborative venture between the London Local authorities under London Councils to enable the Capital’s Pension Funds to work closely together to deliver benefits of scale and efficiency savings to the participating Authorities. At first a voluntary pooling arrangement, it led the way for a much wider pooling of Local Government Pension Schemes (LGPS) under direction from central government.
The London CIV has an Authorised Contractual Scheme (ACS) fund structure also known as tax-transparent funds. The umbrella fund (CIV) has a range of sub funds comprising different assets classes which are available for investment for the participating Local Authority Pension Funds.
At this time the London CIV is focused on using a range of external fund managers to deliver investment choice for the London Boroughs.
What is an Authorised Contractual Scheme (ACS)?
An ACS (introduced by HM Treasury in the summer of 2013) is a UK regulated fund vehicle used to facilitate collective investment in transferable securities. The main distinguishing feature of an ACS is its tax transparency, which makes it highly tax efficient. This means that its investors are treated as if they had invested directly in the underlying assets.
There are a number of advantages of using an ACS for the fund, including:
As the ACS is tax transparent, the withholding tax benefits the pension funds are currently entitled to can be maintained.
An ACS is regulated by the FCA.
How big is the London CIV?
At this stage, the London CIV is in the process of on-boarding managers and assets; it is expected to have around £8bn under management by the end of 2016. Thirty two London Boroughs (including the City of London) have elected to participate. When all assets in London are transitioned into the CIV total assets under management are expected to be in the region of £25bn.
How does the CIV fit into the wider government agenda for LGPS funds to pool assets?
The London CIV journey started before the pooling debate, as a voluntary collaboration across London and will be one of the 6 or 7 Pools of LGPS Pension Investments going forward.
The government has made it clear that it wants 6-7 pools across LGPS investments in order to deliver asset pools that can achieve the benefits of scale, but with strong governance structures in place. Pools are to be at least £25bn and the focus is in on reducing the costs of investing LGPS assets and deliver value for money. The other key criterion is to demonstrate an improved capacity to invest in infrastructure.
The London CIV is keen to work closely with the other pools to see what further collaborative benefits can be delivered.
What are the benefits of the CIV?
Reduced Investment Management Fees – By pooling investments, London LGPS Funds are able to access considerable economies of scale and the CIV has already delivered significant fee savings for the Pension Funds in London. The CIV has engaged with investment managers to negotiate competitive fees and will continue to target value for money. The CIV will engage investment managers who are able to deliver not just cost benefits but also long term performance in order to deliver total risk adjusted return benefits to investors.
Further benefits include reduced custody costs, reduced procurement costs and further foreign exchange and securities lending benefits.
Access to alternative investments and shared investment manager oversight are other key benefits.
The CIV offers the London Pension Funds the opportunity to work closely together and with the CIV to deliver wider strategic benefits and greater knowledge sharing.
Is the CIV open for others to invest?
The key focus for the CIV is the London Borough Pension Funds, but that does not preclude other local authority funds from investing.
If infrastructure is a key criterion for government, what are you doing about it?
The CIV recognises that each London Borough Pension Fund must determine the level of asset allocation for infrastructure investments, but believes that by achieving scale of assets under management, this will provide a level of critical mass to invest in this area which individual Boroughs would not be able to achieve on their own.
The CIV is currently exploring a range of options to optimise an approach to investing in infrastructure.