An End for Consultant Manager Selection?

As UK public pensions prepare to pool their investments, pension consultants are rethinking their propositions.

Manager selection and monitoring could become a thing of the past for consultants working with UK local government pension schemes (LGPS), according to advisors.

“Pools will give individual funds the opportunity to focus on strategy and medium-term opportunities.”Following dramatic changes to the LGPS through the planned pooling of investment assets, major UK consultants have predicted a renewed focus on strategic asset allocation and long-term decision making at investment committees.

The eight (potentially to become seven) collaborations are at various stages of building or hiring investment pooling platforms, which will take away the manager selection and monitoring responsibilities from each of the 89 underlying pension funds.

Jo Holden, head of UK public sector at Mercer, said pension and investment committees would focus more on governance and holding their pool to account for investment decisions.

“We very much see that as a positive,” Holden told CIO. “Committees are going to have a lot more time to look at these things.”

“It’s a game changer,” added Dave Lyons, head of public sector investment consulting at Aon Hewitt. “Pension committees often take a lot of time speaking to fund managers and worrying about short-term performance. It’s not always the case, but the pools will give individual funds the opportunity to focus on strategy and medium-term opportunities, for example the valuation of bonds relative to equities.”

However, in the next two years while the pools are built much of consultants’ work is likely to be project-based, according to bfinance’s Head of Client Consulting Sam Gervaise-Jones.

“Maybe there are 30 global equity managers between the pensions—how do you get that down to two or three?” Gervaise-Jones said “There is a lot of work to come for consultants and other providers, and most of that would be under existing contracts.”

On top of investment work, the pools must also establish structures, build IT capabilities, hire staff, and tender for non-investment providers such as custodians.

JLT Employee Benefits this week announced a partnership with asset management consultancy Alpha FMC to provide a full remit of services to the pools. Spearheaded by Andrien Meyers, the partnership seeks to provide LGPS pools with advice and assistance across all aspects of their setup.

Meyers—previously head of pensions at the London Borough of Lambeth and part of the team behind the London CIV—said there would likely be a shift in decision making during the next phase of pooling. The council chiefs that have led top-level negotiations will hand over responsibility to the specialist pension officers to begin implementation.

Related:Investment Costs ‘Halved’ by Pooling, Public Funds Claim & Reshaping the UK’s Public Pensions Landscape