Lancashire County Pension Fund (LCPF) and the London Pensions Fund Authority (LPFA) have officially announced their £10bn asset liability management (ALM) partnership.
The joint venture between the £5.7bn LCPF and £4.8bn LPFA will be initially known as the Lancashire and London Pensions Partnership (LLPP).
The two parties said LLPP will cover all aspects of pension fund management and provide jointly-managed administration and pooled asset and liability management activities, an arrangement under which assets will be pooled but each fund will retain responsibility for its individual liabilities.
Both funds will maintain local accountability with their own boards retaining control of key strategic decisions, such as asset allocation.
The funds estimate the partnership will save £32m in fees within the next five years, as well as provide access to a greater amount of direct investments, reduce administration costs and provide more effective liability management.
LPFA chief executive Susan Martin said: “We are excited to have taken this unprecedented step of pooling two of the largest pension funds in local government. It is our joint aim to significantly reduce the funds’ combined costs – we estimate by over £32m within five years – and with the benefit of economies of scale, further reduce our respective deficits. ”
Martin told portfolio institutional in order for the funds to be able to pay beneficiaries it was crucial for the LLPP to use the liabilities as a starting point for the investment strategy.
She said: “We are saying ‘let’s look at what liabilities we have and let’s start from good accurate data from our members and employer covenant and what we need in terms of cash to pay out [pensions] and then let’s look at our strategic asset allocation from then’.”
Lancashire County Pension Fund director George Graham said: “Both the LPFA board and the LCPF committee have considered detailed proposals and have agreed that such a partnership would prove beneficial to both organisations, and presents an exciting opportunity that could assist in developing an alternative LGPS model. The partnership will build on the existing expertise across all locations and increase co-operation and collaboration across all aspects of the pension funds, under a strong governance framework. We aim to provide industry-leading standards of administration and so provide our members and employers with efficient and cost-effective services.”
He added: “We are aiming to do LGPS better. In our view that is through professionalising what we do and bringing more of the skill in-house; that is where we think a lot of the savings will come from. If you have a bigger pot to invest you can negotiate keener fees with fund managers. The figures we are quoting are based on genuine discussions with fund managers.”
LPFA currently manages a portion of its equities in house and LCPF directly invests in infrastructure and credit which, according to Graham, are areas the partnership will look to grow.
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