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Exclusive: DCLG rejects pension funds’ joint pooling bid

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Ministers have rejected a bid from a group of southern and eastern council pension funds to use joint procurement instead of pooling their investments in a formal vehicle.

The Access pool, comprising the funds of East Sussex, Cambridgeshire, Essex, Hampshire, Isle of Wight, Kent, Norfolk, Northamptonshire, West Sussex and Suffolk, has received a letter from local government minister Marcus Jones instructing them to set up a collective investment vehicle (CIV).

The CIV model is the government’s preferred option for Local Government Pension Scheme funds to meet the requirement to form large asset pools to save money on investment manager fees.

In July, Access proposed to create a CIV when it submitted its pooling plans for approval. Then, in November, Mr Jones held talks with pools to discuss their submissions.

At this stage, the Access pool presented the minister with two proposals: one for a pool based on a CIV, and another that would be based around a collaborative joint procurement framework because Access believed the pooling criteria “could be better met without the cost and complexity of a CIV”.

However, the Access group has revealed that Mr Jones has ordered Access to create a CIV in a letter received at the end of January.

Despite this, the committee chairs said in a statement they were still working on both options.

They said: “Preparations are underway for renting a CIV operator [a company that will set up and run a vehicle on behalf of the funds] and, via joint procurement through National LGPS Frameworks, progress continues on procuring delivery of passive mandates for Access at reduced cost.

“The response received from the minister… indicated an expectation that Access should form its pool based on a CIV. This is currently under consideration and the Access chairmen are scheduled to meet again later in February. Dialogue with DCLG continues.”

National LGPS Frameworks, a set of frameworks run by a group of local government pension scheme funds, announced plans to create a joint procurement framework for passive investment management services in September last year.

Officers at Norfolk’s pension fund, which is a part of the National LGPS Frameworks group, have previously suggested that procurement could achieve the government’s desired savings on fund manager fees. However, the London Pension Fund Authority has warned these “loose partnerships” would not satisfy the government.

The minister has written to all pension funds regarding their plans but not all pools have yet published these.

The Brunel, Northern, Border to Coast, and London CIV pools have confirmed to LGC that they have ministerial approval of their plans.

DCLG has also approved the plans of the Welsh pool and of the Local Pensions Partnership, a collaboration between the LPFA, Lancashire and Berkshire, despite neither meeting the government’s original requirement that pools were worth at least £25bn. However, the government has pledged to review LPP’s position in terms of scale this spring.

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