Fund manager Baillie Gifford has stopped attending and presenting at committee meetings of several Local Government Pension Scheme clients, demonstrating the trade-off between fees and face-to-face interaction that can come with asset pooling.
The boutique active house will treat certain LGPS pools, including A Collaboration of Central, Eastern and Southern Shires, as one client, which it claims will help constituent local authorities to save costs.
Local authority fund pooling has been taking shape since 2015, when the then chancellor George Osborne initiated a programme designed to drive down costs and secure higher allocations to infrastructure. Transfer of liquid assets to the pools is expected to begin in April 2018.
Baillie Gifford said treating certain pools as single clients would help them to pass on the economies of scale expected from the project.
There should be somebody from the pool coming along to the committee meetings
Graeme Muir, Barnett Waddingham
A spokesperson said: “Baillie Gifford is supportive of the pooling process for LGPS funds across England and Wales and of the push for more cost transparency in general."
The spokesperson added: “Our policy is to aggregate fee scales across all assets managed for a pool where we report to it as a single entity. This approach is already helping our clients to demonstrate the savings the government is demanding of them.”
However, in reaction to the move, clients noted that it would also represent a reduction in the service they were used to.
The Isle of Wight Pension Fund Committee, which forms part of Access and is one of the smallest funds in the LGPS, recorded in its latest minutes that Baillie Gifford was no longer coming to meetings.
“Members noted Baillie Gifford would not be attending the meeting as they were treating members of the Access pool as one client and had reduced customer services accordingly,” the committee said.
Representatives of Majedie, Newton and Schroders all continue to attend.
Councils warm to pooling
For Anish Butani, senior associate on the private markets team at consultancy bfinance, the centralisation of reporting, away from pool constituents, was a “double-edged sword”.
“There is a loss of direct accountability, direct control, but the flipside of that is pools being able to come together and being more streamlined,” he said.
However, Butani said that local authority pension committees were increasingly warming to the idea of being treated as one client, as they reap the benefits of sliding fee scales, and pool structures are clarified.
“As that internal infrastructure is established, I think the intention is for the pool to act as a central point of contact,” he said.
For centralised asset pooling to work, pools will have to take on some of the reporting responsibilities previously carried out by managers themselves, according to Graeme Muir, partner and head of public sector at consultancy Barnett Waddingham.
“There should be somebody from the pool coming along to the committee meetings,” he said.
Muir described Baillie Gifford’s move as “premature” but “bound to happen” given the structure of Access, in which constituent local authorities buy and sell units of the pool’s investments.
In practice, fund managers who had stopped attending meetings would "jump on a plane down to Southampton" if the Isle of Wight was considering selling its Baillie Gifford units, said Muir.
Standardised reporting improves transparency
A positive result of managers reporting directly could be that performance and fee information is standardised by the time it reaches individual councils, said Muir.
First asset managers commit to LGPS transparency code
The Local Government Pension Scheme advisory board launched its code of transparency to improve cost disclosure, amid early indications that asset managers will sign up.
That boost to transparency will be furthered by the introduction of the LGPS code of transparency on cost disclosure, launched earlier this year.
Several asset managers including Baillie Gifford have now signed up to the code, with larger fund houses such as BlackRock preparing to comply in future.
Private sector will be harder to convince
Muir remained doubtful over the prospects for similar pooling exercises in the private sector, which could see large companies relinquishing control to industry-wide pools which also manage their competitors’ scheme assets.
“It doesn’t really work for a big organisation, so this kind of infatuation that bigger is better, there’s a kind of tipping point,” he said.
