London’s borough councils are poised to begin pooling pension scheme assets and negotiating lower fees with asset managers after incorporating a long-awaited Common Investment Vehicle (CIV).
London Councils—the body that represents all 33 London boroughs—has created London LGPS CIV Limited, the holding company for what will become a series of pooled vehicles for pension fund investments. The company is likely to be rebranded later on in the process.
Hugh Grover, local government finance policy director at London Councils, who is overseeing the project, told Chief Investment Officer the incorporation of this holding company was a “key milestone”.
Although Grover said there was “still some distance to travel”, the aim of the CIV is to house a number of sub-funds run by third-party asset managers. In the next 12 months the London borough pensions will begin the process of identifying common investment mandates, pooling these within the CIV, and negotiating a lower overall fee, Grover said.
“As long as there are two or more boroughs with common mandates at the outset, we will look at these first, provided the assets under management are sufficient,” he added. “We will probably start bringing in assets in the first half of next year.”
There are no mandates that are common across all 33 London borough pensions, but Grover said some may be shared by as many as five or six.
The UK government is currently putting pressure on local government pensions across the country to move into passive funds to save on fees. Grover said this proposal was unlikely to stop the development of the CIV but warned it could result in the vehicle “having one arm tied behind its back”.
He said: “The government really should allow us to implement the CIV and look to that to generate the best active returns. It shouldn’t be restricting the freedom of pension funds to invest the way they wish. There are issues to be addressed, but the CIV could do that.”
London Councils is now actively seeking a custodian, depositary, and administrator for the CIV.
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