Investment Pooling Proposals
Devon Pension Fund Employers Meeting 2016
DATE
Forging new futures by working together October 2016
Forging new futures by working together October 2016 2
Devon Pension Fund Employers Meeting 2016
Local Government Pension Scheme pooled investments – The
government will work with Local Government Pension Scheme administering authorities to ensure that they pool investments
to significantly reduce costs, while maintaining overall
investment performance. The government will invite local
authorities to come forward with their own proposals to meet common criteria for delivering savings. A consultation to be
published later this year will set out those detailed criteria as
well as backstop legislation which will ensure that those
administering authorities that do not come forward with
sufficiently ambitious proposals are required to pool
investments.
July 2015 Budget Statement:
Forging new futures by working together October 2016 3
Devon Pension Fund Employers Meeting 2016
Northern Powerhouse £m Border to Coast £m
Greater Manchester 17,591 Bedfordshire 1,710
Merseyside 6,863 Cumbria 2,027
West Yorkshire 11,319 Durham 2,335
35,773 East Riding 3,677
Lincolnshire 1,756
Lancashire/LPFA £m Northumberland 1,067
Berkshire 1,650 North Yorkshire 2,400
Lancashire 5,831 South Yorkshire 6,277
LPFA 4,646 South Yorkshire PT 214
12,126 Surrey 3,194
Teeside 3,244
Wales £m Tyne and Wear 6,378
Cardiff 1,680 Warwickshire 1,638
Clwyd 1,395 35,918
Dyfed 1,914
Gwent 2,277 Midlands £m
Gwynedd 1,497 Cheshire 4,115
Powys 502 Derbyshire 3,694
Rhondda Cynon Taf 2,408 Leicestershire 3,128
Swansea 1,540 Nottinghamshire 4,079
13,213 Shropshire 1,513
Staffordshire 3,769
Brunel £m West Midlands 11,464
Avon 3,835 W Mids Transport 475
Buckinghamshire 2,206 Worcestershire 1,987
Cornwall 1,522 34,223
Devon 3,374
Dorset 2,301 London £m ACCESS £m £m
Environment Agency 2,877 31-33 London Boroughs 29,094 Cambridgeshire 2,284 Kent 4,539
Gloucestershire 1,709 (two yet to confirm) East Sussex 2,747 Norfolk 2,949
Oxfordshire 1,845 Essex 4,933 Northamptonshire 1,865
Somerset 1,434 Hampshire 5,137 Suffolk 2,198
Wiltshire 1,853 Hertfordshire ?? 3,581 West Sussex 2,976
22,957 Isle of Wight 479 33,687
London Pension Fund Authority
?
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BPP funds and size of assets under management £23.3
£3.9bn
£2.2bn
£1.5bn
£3.4bn
£2.9bn
£1.7bn
£1.8bn
£1.9bn
£1.6bn
£2.3bn
4
Stakeholder engagement presentation
October 2016
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Governance and assurance
5
Stakeholder engagement presentation
SOG
Shadow operations
group:
Officers of funds
working on 6
workstreams:
1. Structure &
people
2. Asset transition
costs & savings
3. Infrastructure
4. Internal
management
5. Reporting
6. Project office
FLAG
Finance / Legal
assurance group:
Oversight of project
and assurance to
authorities:
• People matters
• Fund
implications
• Service &
contractual
arrangements
• Governance
• Financials
• Location
SOB
Shadow oversight
board:
Representative of
each fund’s PC –
usually chair, with
independent chair:
• Overall oversight
role.
• Engage with the
Brunel Authorities
• Enable
transparency
and
accountability
October 2016
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Stakeholder engagement presentation
Decision making and informing schedule
Overview panel 08 September – await feedback
FLAG 29 September
SOB 06 October
Engagement days 07, 14 and 17 October
FLAG audio 24 October
FLAG 08 November
SOB 23 November
Authorities First Council 24 November
(Buckinghamshire)
5 in December
3 in January
Last Council 23 February (BANES)
October 2016
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Brunel Pension Partnership
Participating Authority 1
Participating Authority 2 …
… Participating Authority 10
The Participating Authorities
The 10 Participating Authorities each decide their strategic asset allocations between the Portfolios (bold lines).
Participating Authorities have direct beneficial ownership of units in the Manager Operated Funds (dotted lines).
Management Contract between each Participating Authority, the Brunel Manager and the Brunel Oversight Board.
Brunel Oversight Board
Brunel client group
Manager Operated Fund 1
Manager Operated Fund 2
Brunel Manager decides on the Portfolios offered and the Manager Operated Funds/managers to be used for each Portfolio. Typically, between 1 and 3 Manager Operated Funds would be chosen for a given Portfolio, with the Brunel Manager specifying the proportions to be invested between those Manager Operated Funds (orange lines).
UK Equities Core Portfolio
Other Brunel Portfolios …
7
Brunel Manager
(FCA authorised Investment Manager)
Board
Stakeholder engagement presentation
October 2016
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Stakeholder engagement presentation
Brunel Company: set-up and approvals process
• By approving FBC Brunel Authorities will decide in principle to
enter implementation stage i.e. set up of Brunel Company and
new governance arrangements, appointing directors, etc.
• Terms of FBC approval should give delegated authority for
implementation to be taken forwards, within set budget
• FLAG (s.151 and Chief Legal Officers) to provide client-side review
• SOB (Pension Committee chairs) to provide fund-side review
• Under proposed timetable:
• Brunel Company established end Q1 2017
• director and senior staff appointments by end Q2 2017
• FCA application in Q3 2017
• Need to clarify:
• point when Brunel Authorities become irrevocably committed
to pool
• what further approval gateways may be required from Brunel
Authorities at that point
October 2016
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Stakeholder engagement presentation
Proposed operational structure of Brunel Company
October 2016
Portfolio Performance Target
Portfolio Performance Target
UK Core Equities FTSE All Share +1%-2% Diversified Growth Funds 3 Month LIBOR +4.5%
Global Core Equities MSCI World +1-2% Hedge Funds 3 Month LIBOR +4.5%
UK Equities – High FTSE All Share +3% Infrastructure – Capital +7%-8% Absolute
Global Equities – High MSCI World +3% Infrastructure – Income +5%-7% Absolute
Sustainable Equities MSCI World +1%-3% Private Equity 7 Day Libor +5%
Global Equity Income MSCI World +1%-3% Property IPD UK PPF +1%
Low Volatility Global Equity MSCI World Private Debt 3 Month LIBOR +4.5%
Emerging and Frontier Markets
MSCI Emerging Markets +2%-4%
Global Bonds Barclays Global Aggregate Bond Index
+0.5%-1%
Passive Global Equity MSCI World (ACWI) Sterling Corporate Bonds iBoxx Sterling Non-Gilt +1%
Passive UK Equity FTSE All Share UK Gilts FTSE All Stock 15 year +1%
Passive - Other As appropriate Multi-Sector Credit 3 Month LIBOR +3% -4%
Liability Driven Investments
As appropriate
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Stakeholder engagement presentation
October 2016
Portfolios
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Transition Costs
11
Stakeholder engagement presentation
October 2016
Transition Timetable:
• Majority of assets will be transitioned on this
timetable
• Illiquid alternative assets may have a longer
transition timetable which will vary by Fund
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Transition costs
12
Stakeholder engagement presentation
• Costs will be spread over transition period
October 2016
Asset Group Assets to
Transition (£b)
Transition Costs
(£m)
Transition Costs
(%)
Passive Equities 4.7 3.0 0.01%
Active Equities 7.4 17.5 0.08%
Fixed Interest 5.5 6.1 0.03%
Alternatives 3.7 5.3 0.02%
LDI 0.9 0.4 0.00%
Other 1.2 - -
TOTAL 23.3 32.3 0.14%
Portfolio Fee Saving £m
Portfolio Fee Saving £000
UK Core Equities 0.6 Diversified Growth Funds 1.1
Global Core Equities 1.4 Hedge Funds 0.4
UK Equities – High 1.7 Infrastructure – Capital 0.5
Global Equities – High 2.9 Infrastructure – Income 0.6
Sustainable Equities -0.2 Private Equity -0
Global Equity Income 0 Property 2.5
Low Volatility Global Equity 0.1 Private Debt -0.1
Emerging and Frontier Markets 1.7 Global Bonds 0.6
Passive Global Equity 0.8 Sterling Corporate Bonds 0.7
Passive UK Equity 0.4 UK Gilts 0.2
Passive - Other 0.6 Multi-Sector Credit 0.5
Liability Driven Investments 0.0
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Fee Savings – £17.1m per annum (Draft)
13
Stakeholder engagement presentation
October 2016
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Opportunities
14
Stakeholder engagement presentation
• Performance gains
• Risk management
• Fund manager engagement
• Long term approach
• Outcome based diversified portfolios
• Internal management
• Existing funds / other pools
• Longer term vision
October 2016
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Infrastructure
15
Stakeholder engagement presentation
• Likely basic approach
• Partnership with lead manager (UK focus?)
• Supplemented with few additional funds
• National Infrastructure Initiative
• Enhanced approach with internal capacity
• Greater range of funds (specialist)
• Co-investments for control & fee savings
• Regional opportunities?
• Influence and active participation in
national initiative.
October 2016
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Section 7: Next steps
16
Stakeholder engagement presentation
• FBC issued to FLAG 1 November for meeting 8
November
• Officers will use this to prepare for their
meetings
• Regulations come into effect 1 November
• Implementation: • Brunel Company established end Q1 2017 (stage 3b)
• Interim period from stage 3a to stage 3b
Need to clarify:
• Approval of preparatory activity
• Delegations to carry out activities
• Recruitment of Chair for Brunel Company
October 2016
Forging new futures by working together October 2016
Reminder of information on website
17
Stakeholder engagement presentation
Forging new futures by working together