1. Lessons learned from pooling in England and Wales
Lessons learned from pooling in England and Wales
Jeff Houston
Head of Pensions
October 2018

2. Pooling in England and Wales
The lesson – clarity v flexibility - be careful what you wish for….
The timeline
The Pools
A typical pool
What is a pooled asset?
Separation of roles
What is asset allocation?
If we had known then….

3. The timeline
On 21st June 2013 Government publishes a Call for evidence on the future structure of the Local Government Pension Scheme
Government commissions a Hymans Robertson to provide an analysis of LGPS structures which reports in December 2013
On May 2014 Government publishes a consultation entitled Opportunities for collaboration, cost savings and efficiencies.  
In November 2015 Government publishes its response to the above consultation  
Guidance on investment pooling also issued November 2015
January 2016 ‘Project Pool’ a report of the findings of a joint local authority working group on the options for pooling is published
July 2016 eight pools submit proposals to Government
September 2016 consultation issued to revoke and replace the Investment Regulations
November 2016 new Investment regulations implemented
April 2018 target date for the creation of the legal structures for each of the pools
October 2018 autumn updates to MHCLG
Late 2018 new pooling guidance from MHCLG
Transitions complete ???????

4. LGPS Administering Authorities in the Pool
Pools
Pool Name
LGPS Administering Authorities in the Pool
Assets
as at March 2018
London CIV (LCIV)
32 London Boroughs plus the City of London Corporation
£35bn
Northern Pool
West Yorkshire, Greater Manchester and Merseyside
£46bn
Central (LGPS Central)
Cheshire, Leicestershire, Shropshire, Staffordshire, West Midlands, Derbyshire, Nottinghamshire, Worcestershire and the West Midlands Integrated Transport Authority
£45bn
Brunel (Brunel PP)
Avon, Cornwall, Devon, Dorset, Gloucester, Somerset and Wiltshire, Oxfordshire, Buckinghamshire and the Environment Agency Pension Fund
£29bn
Access (Link)
Northamptonshire, Cambridgeshire, Essex, Norfolk, Isle of Wight, Hampshire, Kent, Hertfordshire, West Sussex and Suffolk
£41bn
Wales (Link/Russell)
Carmarthenshire, Cardiff, Flintshire, Gwynedd, Powys, Rhondda Cynon Taff, Swansea, and Torfaen
£15bn
Borders to Coast (BCPP)
Cumbria, East Riding, Surrey, Warwickshire, Lincolnshire, North Yorkshire, South Yorkshire, South Yorkshire Passenger Transport Pension Fund, Tyne & Wear, Durham, Bedfordshire, Northumberland and Teesside
£43bn
LPP (LPP)
Lancashire, Berkshire and the London Pension Fund Authority

5. A typical asset pool? LGPS fund LGPS fund LGPS fund LGPS fund
Supervisory Committee/Board
Provides oversight of operator/advisor and accountability back to funds
LG Act 1972
LGPS regulations
The potential legal and cultural ‘fault line’
FSM Act 2000
FCA Handbook
FCA authorise Operator/Advisor (owned or procured)
Directly invests or appoints external managers, creates vehicles necessary to meet investment and RI strategies of participating funds
Sub funds and other vehicles
Asset class and/or risk based buckets – range of ACS and other fund/vehicles types suitable for a range of asset classes. For example…..
UK Equities
Global
Equities
Fixed Income
Private Equity
Alternatives
Infrastructure

6. What is a pooled asset?
“Pooled assets” are those for which implementation of the investment strategy – i.e. the selection, appointment, dismissal and variation of terms for the investment managers (including internal managers) – has been contractually ceded to an FCA regulated investment management company (“Pool Company”) owned or appointed by the LGPS funds participating in the pool. This includes either (or a combination) of the following structures: Structure 1 Pool Company as a manager of funds The Pool Company operates, and appoints managers to run, jointly owned regulated unitised collective investment vehicles and other long term investment contracts. Structure 2 Pool Company as a manager of managers The Pool Company arranges, negotiates and selects managers to run segregated mandates (including long term investment contracts) owned by the participating LGPS funds. Mandates under management may be new or may be existing mandates transferred to the Pool Company. CIPFA guidance for reporting in a pooled world – May 2018

7. Separation of roles Area LGPS Committee Pool Company
Investment strategy
Sets strategy
Implements strategy
Asset Allocation
Decides on allocation
Day to day management of allocation
Responsible investment strategy
Reporting
Reports to employers and scheme members
Reports to LGPS funds
Manager selection
Selects managers or invests directly

8. What is asset allocation?
Guidance in November 2015 stated that strategic asset allocation should remain with administering authorities ‘recognising their authority’s specific liability and cash-flow forecasts’ but added in paragraph 3.28 that ‘Beyond this, it will be for each pool to determine which aspects of asset allocation are undertaken by the pool and which by the administering authority, having considered how best to structure decision making in order to deliver value for money.’ How far does the need for democratic accountability require choice to dilute scale?

9. If we had known then…… Alternative 1 – Collective procurement
No new FCA companies 
No transfer of expertise
Uncertainty of scale and savings 
Danger of straying into illegal Collective Investment Scheme
Alternative 2 – Fund Mergers
No FSMA/FCA requirements 
Scale is certain
Political/logistical challenges 
Primary legislation required for new single purpose authority

10. Disclaimer
The information contained in these slides has been prepared by the SAB Secretariat, a part of the Local Government Association (LGA). It represents the views of the Secretariat, based on our current understanding of the law. It should not be treated as a complete and authoritative statement of the law. Readers may wish, or will need, to take their own legal advice on the interpretation of any particular piece of legislation. No responsibility whatsoever will be assumed by the SAB Secretariat or the LGA for any direct or consequential loss, financial or otherwise, damage or inconvenience, or any other obligation or liability incurred by readers relying on information contained in these slides.