The government-imposed asset pooling of Local Government Pension Scheme funds forces committees to ask themselves on what basis they will choose pooling partners. Mercer's Jo Holden gives tips on what schemes should focus on.
Action points
Be proactive – there is little time to input into pooling plans
Be realistic – there will have to be compromises at a fund level
Be optimistic – pools can be market-leading if the governance is right
Initial proposals in terms of who will be pooling with who need to be with the government by February 19.
While each individual fund is expected to retain control of their overall asset allocation and funding strategy, the oversight, implementation and monitoring of the investment managers will be made collectively within the pools.
This presents both challenges and opportunities for LGPS funds, and the issue is dominating officer and committee time in terms of deciding the appropriate pool to join and considering what life will look like under the new governance structures.
Different funds are taking different approaches and many questions are being raised:
Do we opt for a regional pool, or should we seek out ‘like-minded’ partners regardless of location?
Will it be one fund, one vote, or will the larger funds dominate?
How much will it cost?
What happens to my staff?
Proactive funds are ahead of the curve
It appears that those groups that took the decision to find like-minded partners first and then look at available options are ahead of the curve
Discussions to date have tended to focus on geography, like-mindedness and opinions in relation to in-house teams. It appears that seven to eight groups have formed, so there is still work to do before the February 19 deadline if the number is to reduce to six.
The groups that are more established are working on principles or rules of engagement and are thinking hard about governance structures.
It appears that those groups that took the decision to find like-minded partners first and then look at available options are ahead of the curve relative to those that decided to work through the data at a more academic level.
For many funds pooling represents an entirely new world and the appointment of an independent chair with appropriate experience in structuring or running an asset management firm may well be worth considering at outset for the newly formed pools.
Late joiners could have less say
Look beyond the LGPS in the pooling discussion
The pooling opportunity exists for funds outside the LGPS too, says EY's Paul Radcliffe
LGPS funds that are yet to decide which pool to join may have the benefit of being able to compare and contrast the different approaches being taken. But the longer funds leave it to commit to a particular grouping, the less input they will likely have in relation to the ultimate terms of reference and approach taken.
If funds did not have enough to be thinking about, it is also actuarial valuation year for the LGPS in England and Wales.
Finding time to work through deficits and, more importantly, future contributions is likely to be even more challenging with the added pressures of pooling.
This year looks set to be monumental in taking steps to deliver the ongoing viability of the LGPS.
Jo Holden is partner and UK head of public sector at consultancy Mercer
