£3B in Passive Mandates Up for Grabs as Wales Joins Pooling Push

Wales’ eight public pensions are set to rubber-stamp plans to pool as much as £3 billion ($4.7 billion) in passive mandates.

Documents published by the £1.4 billion City and County of Swansea Pension Fund show that treasurers from the eight funds have agreed in principle to push forward with pooling their pension investments. Discussions had been halted last year due to uncertainty over the direction of UK government policy.

A report, to be put to Swansea’s pension fund committee on September 24, recommends the appointment of one passive investment provider to run the asset pool on behalf of the funds. The timetable set out by the report indicates the procurement process will start in November with a view to having the provider in place by April 2016.

The provider should “meet both current and future needs of all eight funds”, the report stated. This includes accommodating geographical requirements (global and regional splits), currency hedging, and environmental, social, and governance concerns.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Although the collaboration is to involve all eight of Wales’ public pensions, one of them—the £1.2 billion Clwyd Pension Fund—had no passive equity exposure according to its 2013-14 annual report.

BlackRock currently manages more than £1.5 billion across five of the eight pensions. Legal & General runs more than £500 million in two mandates for the Swansea and Rhondda pensions.

Asset allocation data from the pensions’ 2013-14 report suggest that as much as one fifth of the £12 billion of assets in the eight Welsh pensions was invested passively as of March last year. However, the more recent report estimated passive investments—including fixed income—totalled more than £3 billion, or a quarter of Wales’ total public pension assets.

The UK government is expected to set out detailed plans for pooling of public pension investments by the end of November, according to sources close to the discussions. Ministers have already indicated that they would like to see asset pools of £25 billion to £30 billion, although this figure is an early-stage ballpark figure.

Kentucky Teachers Retirement System (KTRS) has appointed Deputy CIO Tom Siderewicz to the top job as Paul Yancey retires from the pension next month.

A meeting of the pension trustee board this week approved a resolution honoring Yancey’s career at the system, which is Kentucky’s largest financial institution, according to reports in local news service The Lane Report.

Yancey began at the system in 1986 as an analyst and worked his way to the top, eventually taking the CIO role from Stuart Reagan in 2004.

During his time at the system, KTRS’ assets have grown from around $5 billion to $18.5 billion, as of June 30. Its annualized return over the past 20 years, as of the end of December, was 8.2%, according to KTRS’ latest update.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

At the end of June 2014, KTRS was 53% funded, according to a report from its consultants. In August, the state governor unveiled a working group project to study how to improve this funding level and enable the system to pay out pensions for all enrolled members.

“Since 2008, given finite revenue and challenging budgets, the state has been unable to pay the full annual required contribution for teachers’ pensions,” said an announcement on the KTRS website. “Current retirees are being paid by liquidating investments that ideally would be held onto to grow and pay future retirees. In fact, more than $1 of every $3 paid in pension benefits to retired teachers comes from selling the fund’s assets—something that wasn’t necessary less than a decade ago.”

KTRS’ actuary projects that, without required contributions, the retirement fund would exhaust all assets by 2036. KTRS’ sister pension, the Kentucky Retirement System, was noted in a report by Loop Capital Markets this week as being one of the country’s furthest into the red, standing at 45% funded.

Siderewicz will assume the role on October 1, as Yancey takes his retirement.