One of the largest local government pension funds has disinvested £533.9m from an equity mandate run by Newton Investment Management to manage part of its equity portfolio in-house.
The £4.9bn London Pension Fund Authority, which has 81,408 scheme members, took the decision in March this year, according to its 2013/14 annual report, published on 2 October.
The report said: “It was decided that Newton no longer fitted in our investment strategy and we would develop a new internally managed ‘buy and hold’ equity strategy of large global stocks to capture high quality and sustainable investment return.”
A ‘buy and hold’ strategy is where investors buy and retain shares for long periods of time. It is seen as the antithesis of short-term investment in which assets are traded so frequently for immediate profit that, some academics argue, companies cannot grow sustainably and markets lose credibility.
The LPFA terminated its contract with Newton shortly after the end of the 2013-14 financial year. It had held £533.9m of its equity portfolio in Newton funds, which was 10.9% of its entire fund.
It has retained a further £3.1bn invested in equities run by Legal & General Investment Management, MFS Investment Management, Sarasin Oekosar and Insight Investment.
The move is part of the LPFA’s shift towards more in-house, long-term and illiquid investment.
It intends to invest more in single private equity funds, rather than via fund-of-funds which have been criticised for their complex layers of fees. It is also set to invest more in other alternative asset classes, and earlier this year, announced it will be a primary investor in 200 east London homes. It currently holds 16.5% of its portfolio in illiquid assets, including private equity, infrastructure, property, commodities, and alternative debts.
The LPFA’s decision to bring its equity management in-house comes after the government encouraged Local Government Pension Scheme (LGPS) funds, in a recent consultation, to cut their spending on investment management fees.