George Graham, director of the Lancashire County Pension Fund that is set to enter into the partnership with the London Pension Fund Authority from next April, said the groundbreaking deal would save £32m over five years.
The initiative, which was first proposed last December, is intended to result in fee reductions through pooling of funds under management as well as allowing for more direct investment. Both the LCPF and the LPFA will maintain their local accountability once the pooling scheme is formally backed in November.
Graham said both funds had been talking to the Department for Communities and Local Government about the deal, which followed a controversial government consultation on the use of common investment vehicles and passive asset management in the sector. A passive approach typically invests assets to mirror a market in order to deliver a return comparable with the overall performance of the market being tracked, with less hands-on decision making.
Graham said the LCPF-LPFA plan was “about the Local Government Pension Scheme taking its destiny in its own hands”.
However, neither fund was looking to go passive “to any degree whatsoever”, he insisted.
“That is very much what [local government secretary] Greg Clark was talking about at the LGA annual conference, local government taking its destiny in its own hands. I think it fits with the broad approach of policy.”
The comments came before last week’s Budget, which stated the government “would work with LGPS administering authorities to ensure they pool investments to significantly reduce costs, while maintaining overall investment performance”.
In a possible shift from the previous approach to reform, the Budget document also stated ministers would invite local authorities to come forward with their own proposals “to meet common criteria for delivering savings”. A consultation to be published later this year will set out these detailed criteria.
LPFA chief executive Susan Martin told PF both funds saw the partnership as “very much the way forward”.
She added: “And there’s nothing to indicate that we don’t have support for that [from government].
“It’s certainly different from everyone going to passive fund management. Both Lancashire and LPFA haven been very vocal in saying that one-size-fits-all isn’t the appropriate approach, and that we have to focus on addressing our deficit, and in-house [management], intelligent partnership and an active focus are a way to do it.”
As part of plans to boost investment in infrastructure, Martin said that LPFA – which has also formed a £500m infrastructure partnership with the Greater Manchester Pension Fund – wanted to be “at the table” with government.
“We very much see Lancashire coming into that infrastructure investment partnership and as Greater Manchester has said it is open to the other LGPS funds.
“We hope that by working together in the infrastructure sphere we can ensure that the government start to engage with the LGPS rather than just focusing on the sovereign wealth funds.”
Responding to the comments, Nigel Keogh, CIPFA’s pensions technical manager, said the LCPF-LPFA collaboration was welcome, and followed in the footsteps of others including the London pensions common investment vehicle.
“These are the sort of things CIPFA has been encouraging for a number of years,” he added.
“The announcement in the Budget is welcome and allowing LGPS funds to come forward with their own ideas was certainly the direction of travel we hoped the department would follow when we responded to the consultation – building on the good work that has already been done in terms of collaboration initiatives and actively looking to promote those initiatives and remove any regulatory barriers there may be to taking them forward.”
