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CIVs: Collaboration, not compulsion

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Setting up the London LGPS collective investment vehicle (CIV) continues apace.

As chairman of London Councils, I’ve been looking for us to establish the most cost effective LGPS arrangements for the capital. It is both an exciting and innovative development in the delivery of public services and a real indication of the extent to which London local government can come together and work across party lines.

The CIV will deliver benefits on a number of fronts. It will reduce costs, not just through reduced fund management fees, but in areas such as the cost of fund manager searches: one search instead of multiple searches. Beyond that we see real opportunities for wider benefits, such as the new arrangements creating a need to convene councillors from across the participating boroughs to oversee the CIV. Despite the financial significance of pensions for all authorities, this will be the first time that there will be a platform for bringing together elected members with an interest in pension matters; an important opportunity for knowledge sharing and collaboration.

Many have been surprised at how much progress we’ve made in such a short space of time. Work started in earnest in December last year and already we have the majority of boroughs signed up, with tangible results already being delivered. Key to this progress, aside from the hard work of colleagues from London Councils and across the boroughs, has been the constant reinforcement of the principle that this is being delivered for and on behalf of the boroughs, and not being forced on them. This is something the government should think about very carefully as it finalises its response to its recent consultation.

A private limited company has now been incorporated, with 23 boroughs on board as shareholders, plus another seven indicating they will join in the autumn. This represents a major milestone for the CIV and provides a platform for us to begin engaging key suppliers.

Our first procurement is now underway, which will put in place an asset servicer. This contract will cover custody, depositary and fund administration and will be the cornerstone of the overall structure. We have had a number of expressions of interest so far and expect to have selected our partner by early December.

An outline business case was put to the boroughs in February and in light of what we have learned since then, a much more detailed business case is now being prepared. This will put more flesh on the bones of the operating model, including what we should keep in-house and how much should be outsourced, which in turn will lead to a much more accurate cost/benefit analysis and long-term plan.

Ahead of the summer recess we surveyed all the boroughs to collect data on their current fund structure, the size of their fund in terms of assets under management and through which fund managers those assets are invested. Our current thinking is that at launch we will structure the fund based on transitioning mandates in which two or more boroughs have invested. Analysis of the data shows there are lots of ‘common’ mandates that might be suitable for transitioning. Our target of having more than £5bn of assets in the CIV at launch should be achieved, or even exceeded. We are now developing in finer detail how the fund is constructed to deliver maximum benefit for the boroughs and therefore the taxpayer.

We have had informal discussions with several fund managers with high volumes of London borough assets under management and we continue to engage the industry to keep them informed. While it’s not possible to meet every manager individually – there are almost 90 represented across the boroughs – we are inviting managers to a series of information events.

It’s our ambition to have the CIV up and running in the first half of next year. This is an ambitious target, but one that we will be pushing hard to achieve. The government is fully aware of what we are delivering and much of the logic of its consultation reflects the work we have been doing. Their recent consultation shelves the idea of fund mergers and supports the principle of CIVs, which we wholly endorse.

The London CIV is a practical response to the challenges of delivering greater collaboration across borough pension funds and achieving real and significant savings. Among the government’s proposals is a single, national CIV but without the level of voluntary participation we have in London, it is difficult to imagine how this will be delivered.

Jules Pipe is the chair of London Councils and the mayor of Hackney LBC

 

 

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