The Benefits of Outsourcing: UK Mutual Fund Supports Outsourcing
While other LGPS pools in the UK have appointed CIOs, risk managers and in-house teams, the £56bn ($121bn) ACCESS pool has outsourced all aspects of decision-making investment and will continue to be managed externally. It is now looking for managers as it moves onto pooling illiquid assets, including private equity, private debt, infrastructure and real estate.
The ACCESS Pool, one of eight local government pension scheme pools in the UK, representing 11 local authority schemes in the east of England, is under the radar compared to better-known sister pools such as Border to Coast, Brunel Pension Partnership or LGPS Central. Yet, with £56bn of assets under management and representing 3,400 local authority employers, it is one of the largest pools of LGPS assets.
Like others, ACCESS was tasked with building operational and investment capacity to enable client local authorities, still responsible for their strategic asset allocation, to invest together by creating economies of scale, reducing costs and expanding their ability to access alternative investments.
However, unlike most of its peers, ACCESS has moved away from building in-house investment capacity, instead mandating a pool operator and fully outsourcing all investment to managers. Of the eight LGPS pools, five are authorized and regulated by the Financial Conduct Authority.
To date, ACCESS has pooled £35bn of member assets through two passive mandates (£11bn) managed by UBS and a selection of active sub-funds (£24bn) providing access to equities, fixed income and diversified growth.
Using administrative service provider Link Fund Solutions, responsible for the overall management of the pool, including the creation of investment compartments and the appointment of investment managers, ACCESS recently completed its selection of sub-funds by mandating BlackRock , Macquarie, Fidelity and M&G and bring the total pooled assets of member funds to approximately 59%. By comparison, Brunel Pension Partnership now manages around 80% of members’ total assets.
The next step is a review of responsible investment guidelines and the first purchase of alternative assets, says adviser Mark Kemp-Gee, chair of ACCESS’ governing body, the Joint Committee. Minerva was named to the Responsible Investment Review, advising on the guidelines and implementing them in a collaborative environment.
The governance and analytics group will also provide advice on appropriate future reporting requirements to ensure transparency to stakeholders, monitor compliance with guidelines and inform discussions on ESG/RI issues.
“Our main areas of interest have been both the joint procurement of UBS as passive listed asset manager and the process of acquiring Link Fund Solutions as operator for the ACCES Authorized Contractual Scheme (ACS) which hosts active listed asset sub-funds,” says Kemp-Gee, adding that ACCESS has benefited from the full engagement of all 11 authorities throughout the challenges of the pooling process.
ACCESS has appointed consulting firm MJ Hudson as implementation advisor for the pooling of illiquid assets including private equity, private debt, infrastructure and real estate.
“MJ Hudson will provide support to the pool in selecting individual investment opportunities and investment managers to construct portfolios across a range of illiquid assets,” Kemp-Gee said.
Commensurate with the benefits of pooling, as of March 31, 2021 the savings amounted to £42.3m in a trajectory which is expected to continue with the introduction of unlisted mandates within the pool.
“Creating the pool allowed ACCESS authorities to leverage their collective size,” concludes Kemp-Gee. “Savings have been generated through reduced investment management costs.”
remain managed externally
ACCESS does not intend to manage any assets internally. At the start of the pooling journey, all member funds were unanimous that they would outsource all investments to asset managers, he says.
“ACCESS authorities have several similarities in their approach to investing. These include the exclusive use of externally appointed investment managers and the absence of internally managed mandates. This approach remains unchanged as pooling progresses.
While other pools have appointed Chief Investment Officers and Risk Officers, the internal ACCESS team consists of only five full-time staff serving in the ACCESS support unit providing fund management support. programs and contracts. Elsewhere, five part-time staff provide technical leads, drawn from ACCESS member funds. Neither the joint committee nor the support unit has the authority of the FCA. Strategic oversight and control responsibilities rest with the individual pension funds, as do all decisions not only on their individual asset allocation, but on the timing of asset transfers within the pool.
By contrast, Border to Coast’s investment team now has around 50 people who manage some £30 billion of active equity and fixed income securities. Recruitment and internal investment capacity building at Midlands-based LGPS Central includes the hiring of investment team members from graduates in the region with the aim of developing investment expertise outside of the domination of London. To date, three of the eight pools have established internal investment capacity in passive equities and government bonds.