25 May 2001
English council funds face new pressures under Best Value, and these are likely to lead to the appointment of a wider range of private sector pension fund managers and more outsourcing. The Audit Commission is also introducing performance indicators in an attempt to limit early retirements from councils.
A number of local authority funds are in the midst of Best Value reviews, including Merseyside, which has a fund value of £3.2bn; Staffordshire at £1.4bn; and the £830m Worcestershire County Council scheme.
The reviews are statutory, under a five-year programme, but funds have indicated that, with the push for added value – and with the availability of statistics on fund management from the Department of the Environment, Transport and the Regions – many are choosing to investigate now rather than later.
Staffordshire, which recently launched its review, will focus on investment management, particularly its fund management fees. The figures from the DETR, dubbed SF3 analysis, place the fund at the top of the table for management fees as a percentage of fund value, with a figure of 0.396%.
In comparison, Cheshire, with a fund of £1.58bn, spends only 0.15% on fees. Staffordshire retains a number of fund managers including Barings and Invesco, and will investigate the value of retaining them on performance-related fees. It expects to complete the review towards the end of this year.
Avon is also scrutinising its investment managers after poor performance, while Merseyside, which runs the bulk of its assets in-house, is expected to use more external managers. Surrey County Council's review, which was completed last week, recommends that the performance of its actuarial and investment advisers should be assessed against the open market.
Terry Edwards, pensions consultant at the Employers' Organisation, said Best Value was not necessarily about outsourcing but acknowledged there could be major changes among funds. 'Best Value is about continuous improvement and it could lead to more outsourcing, but at this stage only time will tell,' he said.
He added that the Local Government Pensions Committee is due to publish its verdict on the Myners review on institutional investment next week.
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