(April 3, 2014) — One of the UK’s largest local authority pension funds has become only the second of its type to apply for authorisation by the financial regulator.
The £4.1 billion Lothian Pension Fund has applied to the Financial Conduct Authority (FCA)for authorisation to run its own money without needing approval from a third party, such as a consultant. The move will “improve governance of the fund’s £2.8 billion investments that are managed in-house”, it announced today.
The South Yorkshire Pension Fund Authority was the first to take the step and were authorised last year.
The Lothian fund, which runs pensions for City of Edinburgh Council and associated employers, has been building its in-house capabilities over the past few years. It now employs a nine-strong investment team, but a spokesperson for the fund told aiCIO there were no plans to expand it.
Some 60% of its assets are managed internally; these include regional and global equity mandates, and alternatives.
“This is an important step for the fund in making itself responsive and prepared for the challenges ahead in public sector pensions in the future,” said Alastair Maclean, director of corporate governance for the City of Edinburgh Council.
The fund underwent a review by Mercer Sentinel to assess its ability to operate as an authorised entity.
“The review has provided comfort that our internal investment operations are well structured and effective. It has also provided direction to further improvement in our controls if we are to gain authorisation from the FCA,” said Maclean.
Lothian has to create a separate corporate vehicle from the council to enable it to become authorised. The process is envisaged to take several months.
While public sector pensions have barely started to move towards FCA authorisation, several large corporate pension funds have already made the move.
Railpen, Barclays, and the Coal Pension, have all been authorised to carry out investment activity for several years. Last year, the Universities Superannuation Scheme also registered with the FCA.
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