Welsh Local Government Pension Scheme funds have announced the appointment of BlackRock to a £2.8bn passive mandate, following a joint procurement exercise.
LGPS funds across England and Wales will be finalising proposals for pooling plans at both an individual and collective level, ahead of the deadline for submission to the government on July 15.
The majority of funds across the country have already made their plans public, collaborating under government criteria to drive economies of scale for more than 5m members across the country.
As far as I’m aware it is the first time this kind of search has been undertaken… by like-minded funds who are going to be working together
Dave Lyons, Aon Hewitt
LGPS funds in Wales have been working with the Society of Welsh Treasurers Pension Sub-Group since 2010 to develop their response to the government’s call for collaboration; in February this year, the eight Welsh funds – among them the £1.4bn Clwyd Pension Fund and the £1.7bn Cardiff and Vale of Glamorgan Pension Fund, tendered for a single manager for their combined passive equity and bond holdings under a joint procurement framework.
The Welsh funds have announced that BlackRock, the world’s largest asset manager, has been appointed to the mandate worth roughly £2.8bn. The assets were previously managed by three different managers.
In a statement, a spokesperson for the Welsh funds said: “We were impressed by the breadth, depth and quality of the bids submitted, as well as the attention paid by bidders to proposing solutions to meet the specific circumstances of the Welsh funds.”
Joint procurement
Dave Lyons, head of public sector investment consultancy at Aon Hewitt and adviser on the project, said the Welsh tender was the first joint search to undergo the rigorous public sector procurement process and to be fully compliant with Official Journal of the European Union rules.
At the end of last year, seven LGPS funds, including Cheshire and Leicestershire, jointly awarded Legal & General Investment Management £6.5bn in passive mandates across equity, fixed income and smart beta, but Lyons said the "seven shires search was non-OJEU".
“As far as I’m aware it is the first time this kind of search has been undertaken… by like-minded funds who are going to be working together,” said Lyons.
He added that passive investment, a relatively common theme through the LGPS, was a "sensible starting point" for collaboration on investment pooling.
Lyons could not confirm whether the joint Welsh mandate signaled government approval of the Welsh pooling proposal; the all-Wales pooling project – with combined assets of £10bn-£12bn – does not currently meet the government’s desired benchmark of £30bn for collated assets.
“I don’t know how the Welsh funds’ proposal was received by [the Department for Communities and Local Government], but you could look at reasons as to why the Welsh would be permitted to proceed even though they fall short,” said Lyons.
Barry McKay, partner at consultancy Hymans Robertson, said passive mandates will be the “low hanging fruit” in the pooling process.
“One of the aims with the pools is to save fees – passive fees are lower anyway – but it’s a quick win,” he said.
