Agenda item
London pension fund collaboration (collective investment vehicle)
The report provides an update on the voluntary collective investment vehicle (CIV) which is being developed by the London Leaders.
Minutes:
Julian Pendock introduced the report and explained that the Government had been suggesting for a while that local authorities should be encouraged to merge funds as a more effective way to obtain higher returns. However, there was no information to specifically suggest that there was a direct correlation between a fund’s size and its return. Members heard that 30 out of 33 London boroughs, including Brent, were participating in a voluntary collective investment vehicle (CIV) based on a mutual attraction. Julian Pendock informed the committee that the London Leaders and Society of London Treasurers had been comparing a range of options for closer fund pension collaboration and the preferred option was a CIV that operated on a voluntary basis. He advised that the CIV was working closely with the Baillie Gifford Diversified Growth fund with a view to incorporating it onto the CIV. Members heard that the CIV was working with a number of organisations, such as Deloittes, in facilitating the CIV and it was recommended that the council contribute an additional £50,000 for the set up costs of the CIV, with one payment of £25,000 being requested now, and the remaining £25,000 anticipated in April 2016.
During members’ discussions, it was commented that some boroughs within the CIV may be minded to continue investing with the same organisations and individuals that they had known for a long while, and these relationships and investments would not be impacted by the CIV. It was queried what the total level of investment of the CIV would be and whether it represented a material amount. Further information on the lower fees and improved performance that the CIV would generate was requested. A member, in noting the amount that each partner borough was being asked to contribute towards the CIV, asked if London Councils was also making a contribution. The committee also asked how the council’s pension fund would be managed locally.
In reply to the queries raised, Julian Pendock emphasised that the CIV did not compel local authorities to commit to particular investments and there were also measures being taken to ensure transparency and the appropriate corporate governance arrangements. The CIV would be open to new ideas in how to achieve higher returns. Julian Pendock advised that there would be a gentle roll out in terms of investing in the CIV and there were some equities in particular that he would like to be included in its portfolio. There was potential for some significant returns in the medium to longer term, particularly in private equity. Members heard that the optimal structure of the CIV was being fine tuned, in consultation with the Financial Conduct Authority and HM Treasury. Julian Pendock advised that it was difficult to estimate the approximate savings that could be made through the CIV at this stage, however up to 20% could be achieved overall, on the basis of initial indications from consultations with fund managers. He added that presently there were a number of local authority pension funds that were largely similar in composition and the CIV would provide more time for the partner boroughs to consider other options.
Mick Bowden (Operational Director – Finance, Finance and IT) advised that London Councils was made of individual London boroughs, with London Councils set up on behalf of the boroughs who are the active owners and this is why they made individual contributions to setting up the CIV. He drew members’ attention to the table under section 3.4 in the report that set out the estimated savings from the CIV and advised that, on that basis, it would take one year to pay off the total set up costs per borough of £75,000. Mick Bowden advised that membership of the CIV would not change the council’s ability to manage its own funds locally and who it wanted to invest in, however it now had the choice to invest either through the CIV where it would achieve better value, or on its own.
RESOLVED:
that the ongoing establishment of a collective investment vehicle (CIV) be supported and delegate authority to the Chief Finance Officer to approve a further £50,000 expenditure relating to the set up costs of the CIV, with one tranche of £25,000 to be paid now, and one more in April 2016.
Supporting documents: