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Pension fund group consolidates £11bn assets outside pool

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A group of pension funds has negotiated a joint contract with UBS Asset Management to run £11bn of its investments outside of a formal pooling structure.

The 11 county funds that are part of the Access pool have awarded a collective mandate to UBS to run their passive equity holdings, achieving an estimated fee saving of £5m per year.

The assets will be held outside of any formal investment vehicle, such as the authorised contractual schemes (ACSs) the government has recommended for Local Government Pension Scheme pooling. The funds will transfer their passive equity assets to the UBS mandate in March 2018.

The contract will run until March 2028 initially, with the possibility of a five-year extension at that stage and an additional extension to November 2036.

The move comes after LGC revealed the government is considering allowing pension funds to keep their passive assets – which make up around a quarter of the LGPS’ total holdings – outside of formal pooling structures because this may be more cost-effective than transferring them into pools.

In a statement, Access made clear it believes the collaborative mandate will meet the government’s pooling objectives. It said the move “means that £11bn of Access assets will be pooled in advance of the government’s target date” for pools to become operational in April next year.

Access funds secured the deal by using the National LGPS Frameworks’ passive investment management procurement framework. This framework is open to all LGPS funds.

Earlier this year, Access submitted a proposal to local government minister Marcus Jones to manage all of its member funds’ investments through procurement frameworks rather than a formal vehicle such as an ACS. Mr Jones rejected the proposal.

Access is now tendering for a provider which will set up and run an ACS on its behalf, through which it will manage the rest of its assets. This is opposed to setting up an ACS itself, as the London Collective Investment Vehicle, the Brunel Pensions Partnership and Border to Coast have done.

Andrew Reid (Con), chair of the Access joint committee, said: “I am delighted we have started the process of pooling early with some tangible, long-term savings and look forward to a smooth transition to UBS.”

Malcolm Gordon, head of UK institutional at UBS, said: “[Access’] decision to partner with us is a great endorsement of UBS Asset Management’s long-established, world-class indexing capability.

“It also reflects our deep heritage with LGPS and our long term commitment to servicing this sector.”

The pension funds within Access are: Cambridgeshire, East Sussex, Essex, Hampshire, Hertfordshire, Isle of Wight, Kent, Norfolk, Northamptonshire, Suffolk and West Sussex.

Northamptonshire and West Sussex had passive equity mandates with UBS prior to the new contract. Essex, Hertfordshire, Norfolk, and Suffolk worked with Legal & General Investment Management only on passive equities, while East Sussex employed LGIM and State Street. Kent’s passive mandates were run by State Street only. Cambridgeshire had mandates with State Street and MSCI, while Isle of Wight contracted with Majedie and MSCI. 

The Financial Times reported that LGIM, BlackRock and Deutsche Asset Management tendered for the mandate.

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