London Pensions Unveil Pooled Investment Vehicle

The new Common Investment Vehicle for London borough pension funds could have its first assets within 12 months.

London’s borough councils are poised to begin pooling pension scheme assets and negotiating lower fees with asset managers after incorporating a long-awaited Common Investment Vehicle (CIV).

London Councils—the body that represents all 33 London boroughs—has created London LGPS CIV Limited, the holding company for what will become a series of pooled vehicles for pension fund investments. The company is likely to be rebranded later on in the process.

Hugh Grover, local government finance policy director at London Councils, who is overseeing the project, told Chief Investment Officer the incorporation of this holding company was a “key milestone”.

Although Grover said there was “still some distance to travel”, the aim of the CIV is to house a number of sub-funds run by third-party asset managers. In the next 12 months the London borough pensions will begin the process of identifying common investment mandates, pooling these within the CIV, and negotiating a lower overall fee, Grover said.

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“As long as there are two or more boroughs with common mandates at the outset, we will look at these first, provided the assets under management are sufficient,” he added. “We will probably start bringing in assets in the first half of next year.”

There are no mandates that are common across all 33 London borough pensions, but Grover said some may be shared by as many as five or six.

The UK government is currently putting pressure on local government pensions across the country to move into passive funds to save on fees. Grover said this proposal was unlikely to stop the development of the CIV but warned it could result in the vehicle “having one arm tied behind its back”.

He said: “The government really should allow us to implement the CIV and look to that to generate the best active returns. It shouldn’t be restricting the freedom of pension funds to invest the way they wish. There are issues to be addressed, but the CIV could do that.”

London Councils is now actively seeking a custodian, depositary, and administrator for the CIV.

Related Content: London Pensions Dump Merger, Back Collective Investment & UK Government Under Fire for Passive Investment Drive

Credit Suisse Quits Commodities Trading in Litigation Aftermath

The Swiss bank also reported its largest quarterly loss since the financial crisis following a $2.6 billion settlement with US authorities for tax evasion.

Credit Suisse announced it will shut its commodities trading business following significant quarterly losses due largely to its May guilty plea for tax evasion.

The “non-strategic” parts of its investment bank will also be trimmed going forward, the Swiss bank said, to reap greater profits and cut costs.

“The restructuring of our macro business, including the exit from commodities trading, is expected to drive further capital, leverage, and expense reductions,” Brady Dougan, Credit Suisse’s CEO, said.

He continued to say that by withdrawing from commodities, the bank is expected to cut $75 million in costs and reduce risk-weighted assets and leverage exposures by $2 billion and $5 billion respectively. Dougan also said resources used in commodities trading will be reallocated to “more profitable businesses.” 

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JP Morgan also sold its physical commodities business for $3.5 billion to Swiss trading house Mercuria late June after posting low revenues in the second quarter.

Credit Suisse reported a net loss of CHF 700 million ($779 million) for the second quarter in 2014—the largest loss it has faced since the financial crisis.  

“The restructuring of our macro business, including the exit from commodities trading, is expected to drive further capital, leverage, and expense reductions,” Brady Dougan, Credit Suisse’s CEO, said.

In addition to knocking off the Zurich-based bank’s profits, the $2.6 billion settlement with the US authorities also brought down Credit Suisse’s capital ratio measuring financial stability to 9.5% at the end of the second quarter from 10.4% in Q2 last year.

“I want to reiterate that we deeply regret the past misconduct that led to this settlement and that we take full responsibility for it,” Dougan said. “The continued trust and support of our clients helped us mitigate the impact of the settlement on our business.”

In a conference call on Tuesday, the CEO said the bank is unsure exactly how much business it lost as a result of the litigation.

“There may be clients that didn’t do business with us, that would have,” Dougan said.

However, the bank remained optimistic about regaining profits and moving on from the impact of the legal fiasco.

“We maintained a resilient capital base and leverage ratio despite the impact of the settlement of the US cross-border matter,” Dougan and Urs Rohner, Credit Suisse’s CFO, said in a statement. “In addition to resolving our most significant longstanding legal litigation issue, we saw continued strong momentum with clients and made progress in winding down our non-strategic portfolio.”

Related Content: Credit Suisse Fears Sentencing Will Harm Asset Management Business

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