For Joanne Segars, chair of LGPS Central, the essential quality of a Local Government Pension Scheme pool is dynamism.
“Whatever LGPS Central looks like on 1 April  will be very different to how it looks on 1 April 2019 or 2025. It has to be dynamic and that’s a bit of a challenge on us – to make sure we can be dynamic and innovative.”
Central will manage £40bn on behalf of nine pension funds: Worcestershire, Shropshire, Staffordshire, Cheshire, Derbyshire, Leicestershire, Nottinghamshire, West Midlands and the West Midlands Integrated Transport Authority fund. All but the transport fund are shareholders in the operating company, LGPS Central Ltd.
Ms Segars, who was chief executive of the Pensions and Lifetime Savings Association for a decade, explains that pools “have quite a lot of moving parts in their governance structure”.
The pension funds’ committee chairs will meet in a shareholder forum to hold the pool company to account “as they would in any company”, she explains.
“There are certain decisions that are reserved to [the shareholders],” Ms Segars says. These are the more strategic decisions. More technical issues will be raised through the practitioners’ advisory forum, comprising section 151 and other pension fund officers.
Ms Segars’ current task is to travel the region meeting the elected members and officers running each partner fund, along with Central’s chief executive, Andrew Warwick-Thompson, previously a director at The Pensions Regulator.
“I’m busy going out to meet [them]… to make sure we all know and understand each other and know we can act reasonably promptly to funds’ requirements,” she says.
Funds will retain strategic decision-making authority. As with other pools, however, asset managers will be chosen by the pool, not the funds.
“We will have a number of portfolio buckets and those are being developed with the partner funds so they reflect what the funds want and how their asset allocation currently sits,” says Ms Segars.
“That’s going to be a quite fluid process because where we start in April 2018 with however many portfolios it will be, that’s partly set on where we are in the moment in terms of the asset allocation of the partner funds.”
That said, Ms Segars says funds are already challenging the pool to demonstrate its value by securing more interesting investment opportunities than the funds would have been able to access alone.
“Part of the Department for Communities & Local Government’s raison d’être for pooling is to expand the range of investment opportunities available to local government pension funds,” says Ms Segars.
She envisions a two-way discussion about investment opportunities with partner funds – but funds will not be able to simply demand any product is added to the pool regardless of its value to the wider group.
“It may well be that partner funds come to us and say, ‘we want a portfolio that looks like this’ and we will need to think about whether there is sufficient demand for it and if there are sufficient assets under management for that,” Ms Segars explains.
Internal asset management presents another opportunity for Central to “deliver value to funds”, Ms Segars says. The West Midlands and Derbyshire funds’ in-house capabilities are well known, and Ms Segars confirms the internal asset management teams at partner funds will transfer to the Central company.
“We will have a big internal capacity and that will be one of the ways in which we drive cost efficiencies,” she says.
“If you’ve got £40bn in assets under management, to have that bespoke internal asset management capacity, is really important. I would expect that’s something which will grow over time.”
Real assets such as infrastructure present the pool with another opportunity to achieve otherwise unobtainable investment outcomes for partner funds, Ms Segars says, although some of the funds are already leaders in infrastructure.
“Partner funds within LGPS Central [have] quite a good track record on those real assets. West Midlands, for example, has been closely involved with the Pensions Infrastructure Platform, and Derbyshire has done quite a lot of investment in fixed interest in infrastructure. We start from quite a strong internal knowledge base on those issues,” she says.
Co-operation between different pools to access the most highly-prized infrastructure opportunities is a must, Ms Segars adds.
“It would be bizarre if we all ended up bidding for the same opportunities and increasing the price of the assets,” she says. “I would expect that we will co-invest with pools, co-invest with our pension funds, we might co-invest with pension funds from overseas.”
Above all, Ms Segars says LGPS pooling presents a “career-defining” opportunity for the people involved to create a successful asset management company “with a public sector ethos running through it”.
“It’s not every day you get the opportunity to get involved in a £40bn asset manager where you’ve not got to go out and do the fundraising and where there is huge opportunity and excitement,” she says.