Ahead of the government’s backing, London’s local authorities are well advanced in their plans to set up a collective investment vehicle that could cut costs by millions
The government, in its latest consultation paper on the future structure of the local government pension scheme, has recommended the establishment of collective investment vehicles (CIVs) across the country.
However, London’s boroughs have not been waiting on Whitehall, but have already got to work on setting up their own collective vehicle.
London local government leaders agreed last December to press ahead with plans to develop the vehicle, which is expected to go ahead subject to the outcome of this month’s council elections.
London Councils, the umbrella body for the City of London Corporation would be voluntary. It said that creating a CIV maintaining local accountability and control.
The vehicle would seek to appoint “best in class” investment managers to provide a range of asset classes. The CIV is planning to launch with investments in traditional asset classes, such as equities and bonds, and could expand to cover alternative asset classes such as property and infrastructure at a later date.
32 London boroughs plus the City of London Corporation will be eligible to join the scheme
Participating councils would opt into investment in those asset classes they saw fit. The individual boroughs’ pensions fund panels would then retain the decision on the size and nature of any investment.
The CIV would be responsible for day-today governance in relation to individual managers, including holding the regular quarterly meetings and providing regular quarterly performance reports.
The new vehicle would be able to use its buying power to secure lower fees from investment managers
The upside from a cost point of view, is that the new vehicle would be able to use its buying power to secure lower fees from investment managers.
Analysis puts the potential savings at £120m if the vehicle has £24bn of assets under management, down to £25m if the assets managed are less than £5bn.
These savings, the CIV’s champions argue, can be achieved without the upheavals and loss of sovereignty fund mergers could cause.
A paper presented to Haringey council’s corporate committee says setting up the CIV would enable London’s councils to focus on asset allocation, which it says remains the key driver of investment performance.
Welcoming the government’s decision to back CIVs, London Councils chair Jules Pipe, said: “We have argued that the pensions model being developed by London Councils would benefit all Londoners by reducing the cost of local government pensions, increasing returns on investment and opening up the possibility of more investment in infrastructure.
“Both council tax-payers and pension scheme members will continue to be protected.”
This article is part of a special report into local government pension schemes, produced in association with Aviva Investors