image-for-printing

West Midlland Pension Fund’s Jill Davys: “I am reluctant to overpay for assets”

by

12 Jun 2018

A month after the local government pension scheme pool for the Midlands was launched, West Midlands Pension Fund assistant director of investments and finance Jill Davys tells portfolio institutional about the first month as a pool, costs, infrastructure, climate change and emerging market debt.

A month after the local government pension scheme pool for the Midlands was launched, West Midlands Pension Fund assistant director of investments and finance Jill Davys tells portfolio institutional about the first month as a pool, costs, infrastructure, climate change and emerging market debt.

Do you invest in the West Midlands?
We have not made any direct local investments like Greater Manchester has in its region. Going forward, we may consider whether there are opportunities, but only if they have the right risk  return profile that meets the equivalent of any other investment.

What type of assets will you be looking at?
It is early days. We are going to be reviewing some options and having discussions with partner funds in LGPS Central to see what opportunities there are across the whole region, not just in the West Midlands.

On the investment side of the scheme you beat forecasts by £387.5m in the year to 31 March 2017. What is the secret?
We have probably had a more mixed performance this year. We were overweight in growth assets, so primarily equities, which did reasonably well. We were trying to focus on getting the right investments in the right places. I cannot take too much credit for that because I didn’t join the fund until September/October of that year.

During that period you also saved almost £9m in investment fees. How was that achieved?
West Midlands Pension Fund has been at the forefront of the cost transparency exercise. A lot of work was done two or three years ago to find out what the true underlying
costs of the fund were. What was put in the published report and accounts was significantly lower than what was in reality being charged by fund managers, either as part of pool pricing or performance charging.

When they dug behind those numbers they were significantly higher than the ones they had published. It is one of those things that once you start to understand the makeup of the costs you can then start to challenge them a lot more than you had done previously.

There has been a focus on challenging external managers about their costs and understanding what they are.There has also been more of a shift to try and internalise some of the asset management and where the external providers are not adding quite so much value then to think about moving a bit more towards passive.So it has been a whole range of things. The first step is to understand what your true costs are rather than just publishing what you are seeing on an invoice.

You challenge your external managers on cost, but how often do you assess their performance?
We get quarterly reports from the managers. We try to be realistic and set longer term targets.We are a pension fund at the end of the day, so we can’t make decisions on a three month view. So we try to look at them on a rolling basis. It depends on the time frame for the individual investment. So, for the quoted equities we are looking at three-year returns. For some of the longer assets, private equity and infrastructure, for instance, you need to assess those over a longer time frame– five to seven years. Typically the turnover of our external managers is quite low.

More Articles

Subscribe

Subscribe to Our Newsletter and Magazine

Sign up to the portfolio institutional newsletter to receive a weekly update with our latest features, interviews, ESG content, opinion, roundtables and event invites. Institutional investors also qualify for a free-of-charge magazine subscription.

×