Wandsworth Council Pension Fund has set its sights on leading a London-wide collective investment vehicle to drive down costs, rather than a forced merger, pensions committee documents have revealed.
The £860m scheme is keen on leading a voluntary collaboration between funds in the capital, in an effort to reduce investment management fees and increase performance – if local authority organisation London Councils declines to be the lead player.
CIV plans: key features
The CIV would operate by maintaining a “best of breed” selection of funds for each asset class.
The lead authority would procure an investment adviser, transition manager and fund managers.
The vehicle would generally be a segregated mandate and use its buying power to secure lower investment manager fees.
Boroughs would be free to choose which, if any, manager to use from the CIV.
One of the first asset classes to be investigated would be infrastructure.
In a report by the council’s director of finance Chris Buss to the pensions committee in May, he said the “maintenance of the status quo” was not a viable alternative to a full merger.
“In view of this the committee is recommended to support the council’s active involvement in the establishment of a London CIV, including offering to act as host if required,” said the report.
A London Councils spokesperson said it was a matter for individual boroughs, and the organisation’s role was to “facilitate discussions” and allow councils to develop their proposals.
Wandsworth council officers have been actively involved in the CIV plans, including setting up governance and administration, and the authority is in an “ideal position” to lead the project, according to the document.
In the past, Wandsworth has hit out at proposals put forward by the London Pensions Fund Authority to merge the city’s local authority funds into a single £40bn scheme to make savings.
The borough has argued that a centrally imposed merger could lead to significant transitional costs, and has questioned LPFA’s performance record.
But LPFA has backed Wandsworth’s latest plans as a step in the right direction. Chief executive Mike Taylor said the fund would be interested in joining and that the south-west London council had the pedigree to lead such a project.
“We think it’s great, it means that London councils have moved on significantly since we first put the proposal to them of looking at putting [their] funds together,” he said.
But he urged the CIV proponents to go further, adding it was no good creating an investment vehicle without knowing how liabilities are being managed.
Wandsworth said the costs of setting up a CIV would be “largely recoverable” from participating boroughs, but acknowledged there was a risk some initial set-up costs may not be – estimating this could be as much as £50,000.
The government recently announced a call for evidence on merging schemes, with a consultation paper expected to be published later this year.
Mark Packham, director of public sector pensions at consultancy PwC, said a centrally imposed model might still happen as a buy-in from schemes was essential for the full benefits to be realised.
“The danger [with a voluntary model] is you wouldn’t get enough funds buying in to achieve the economies of scale that is necessary in order to negotiate more effectively with investment managers and get the long-term continuity of governance that is needed.”
The council did not respond when asked to comment further on the plans.
