Background

Housing and Communities (DLUHC) issued guidance on LGPS asset pooling (LGPS: Investment Reform Criteria and Guidance), which sets out how the government expected funds to establish asset pooling arrangements. In January 2019, the DLUHC issued a consultation and draft guidance on asset pooling within the LGPS, setting out changes to the pooling framework. This guidance will set out the requirements on administering authorities, replacing previous guidance, and build on previous ministerial communications and guidance on investment strategies.

The Fund recognises the Government’s requirement for LGPS funds to pool their investments and is committed to pursuing a pooling solution that ensures maximum cost effectiveness for the Fund, both in terms of return and management cost.

The pension funds across England and Wales have come together to form eight asset pools. The Fund joined the London Collective Investment Vehicle (LCIV) in December 2015. The pool comprises of the 32 local authorities within London and as of the 31 March 2024, the total assets deemed pooled by Partner Funds stood at £31.6 billion, of which £17.1 billion are in funds managed by London CIV.

Assets under management via the London CIV Authorised Contractual Scheme (“ACS”) stood at £15.6 billion, and assets invested in our private market funds stood at £1.5 billion, with £3 billion in total commitments. The aggregate value of ‘pooled’ passive assets held by Legal and General Investment Management (“LGIM”) and Blackrock was £14.5 billion, with £10.5 billion managed by LGIM and £4 billion managed by BlackRock.

The objective of asset pooling is to deliver:

• benefits of scale
• strong government and decision making
• reduced costs and excellent value for money, and
• an improved capacity and capability to invest in infrastructure

The responsibility for determining asset allocations and the investment strategy remains with individual pension funds. The Fund is a member of the LCIV asset pool. As such it is a shareholder of LCIV along with all other London Boroughs. The Chair of the Committee is the nominated shareholder representative and attends general meetings and votes at them on behalf of the Fund.

The Fund has assets in the London CIV with a value of £ 550.7m or 54% as at the 31 March 2024. Going forward the Fund will look to transition further assets as and when there are suitable investment strategies available on the platform that meet the needs of the Fund.

Governance

There are a number of governance issues to be considered under pooling arrangements such as the relationship between the pension fund and asset pool, governance structure of the pool and the role of administering authorities.

The London CIV Shareholder Committee is responsible for scrutinising the actions of the LCIV Company Board, reporting and transparency, consultation on the strategy, responsible investment and emerging issues. The Committee comprises of 12 members including Councillors and Treasurers from the LLAs.

London CIV shareholders approved a new Corporate Governance and Controls framework at the July 2018 Annual General Meeting (AGM). This framework details the governance arrangements for approving the London CIV’s annual budget, business plan and objectives, governance structures and appointments, shareholder agreement and transparency of information and reporting.

The London CIV Company Board comprises of an independent Chairman, 7 non-executive Directors (NEDs), including 2 nominated by the LLAs, 3 executive Directors and the LCIV Treasurer. The Board has a duty to act in the best interests of the shareholders and has collective responsibility for; strategy oversight, budgeting, performance review, major decision making, financial reporting and controls, compliance and risk management, key policies and governance.

The London CIV has four Committees, responsible for investment oversight, audit and risk, remuneration and nominations and day to day operations of the company. These comprise of executive and non-executive members.

External independent oversight and assurance of the pool company is provided by the FCA, depositary, external auditors and the DLUHC. The London CIV hosts an AGM on a semi-annual basis, to which all 32 members are invited. This allows members the opportunity to exercise shareholder power, approve the annual budget and hold the Board to account.

Pool Fees

Pool Set up and Transition Costs

The set up and transition costs incurred by the Fund in relation to pooling are detailed in the following table.

Other Investment Management Costs

The table below splits investment management costs between pooled and non-pooled.

* Fees which are paid by invoice
**Fees which are deducted from fund assets and underlying transaction fees 
*** Underlying transaction fees for non-pooled investments are unavailable

Asset Pooling in London Collective Investment Vehicle (LCIV)

At 31 March 2024 the Fund held investments in seven pooled funds through LCIV (Newton Global Equity, RBC Sustainable Equity, Stepstone Infrastructure, Renewable Infrastructure, PIMCO Global Bond, Inflation Plus and MAC fund).

During the year, the fund decided to divest 5% of its portfolio from LCIV in favour of Ninety-One (an off pool fund manager) as the asset class was not available to the fund at the time and the pool were not seeking to pursue it within the time frame that the fund needed it to be.

The fund holds private equity off pool, as the asset class is not available to the fund through the pool. It also holds property, infrastructure and illiquid credit off pool. These classes are undergoing review to determine whether a transition to the pool would be beneficial to the fund but any large movements are most likely to be determined at the next triennial valuation when the ISS is reviewed (2025).

The fund is committed to its fiduciary duty and will continue to engage with the pool, as one of its first options, when looking to invest.

For further information on the breakdown of investments, please refer to the financial statements.

Investment in the UK

The fund is committed to its fiduciary duty and believes that pursuing a strategy of diversification in both asset class and geography will mitigate investment risks. Consequently, the fund does not have a formalised allocation to UK assets alone but will have this amongst other assets on a global scale.

As of 31 March 2024, the total amount of investments in the UK are detailed below.

Whilst not included in the figures below, please note that the fund has undrawn commitments for LCIV Infrastructure Fund, LCIV Renewable Infrastructure Fund and Partners Private Equity.

LCIV are assuming that these commitments will be deployed in the same ratios and the drawn down commitments when submitting our return. Both will be 100% infrastructure with Infra being 39.5% UK and Renewable Infra 42% UK.