Infographic: Reshaping the UK’s Public Pensions Landscape

While the UK, and much of Europe, was focused on the political fallout from Brexit (Boris Johnson? Seriously?), last week also saw final plans submitted for eight collaborative projects among the country’s public pensions.

The planned asset pools are the result of an ambitious concept launched by former Chancellor George Osborne last year to scale up resources across local government pension schemes (LPGS), save money on fees, and invest more in the UK’s infrastructure.

Some, like the London Collective Investment Vehicle (CIV) and the Local Pensions Partnership (LPP), were well advanced when Osborne’s plan was made public. Welsh local authority pensions had been collaborating informally for some time. Other pools have come about in record time, reshaping the public pension landscape in England and Wales.

UK Public Pension Collaborations
Source: 2014/15 annual reports. Infographic by Sam Syed.

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Cost savings

The chart above shows aggregate investment management expenses for each group during the 2014/15 reporting year. Despite criticism from industry commentators that the LGPS as a whole is expensive, aggregate investment fees amounted to less than 0.5% of pool assets in each case.

The London CIV claims already to have halved its costs on pooled assets, while a report published in January claimed the collaborations could save between £190 million and £300 million ($250 million to $394 million) a year.

Size

The government intends for each pool to be at least £25 billion in size. Documents from the Wales pool indicate that Marcus Jones, minister for local government, has given the eight funds his blessing for a smaller pool of £13 billion. The LPP is in talks with the three Northern Powerhouse funds—Greater Manchester, Merseyside, and West Yorkshire—to formalize a link-up for their combined £48 billion.

Structure

The submissions have yet to be publicized, but letters from Jones—whose Department for Communities and Local Government is overseeing the pooling developments—to three of the pools indicate that the London CIV’s structure is the government’s preferred option.

Julian Pendock, CIO of the London CIV, is establishing sub-funds based on common mandates across London’s 33 local borough pensions. It has already pooled assets worth £8 billion.

Next Steps

The next deadline the pools have to meet is April 2018, when the government wants the transfer of assets to the new structures to begin.

In the meantime, negotiations are underway to build a nationwide infrastructure platform across all pools. This includes a proposal from the Northern Powerhouse to create a clearing house for infrastructure assets.

“The general concept is to avoid loss of value through pools competing against each other for infrastructure deals,” stated the Northern Powerhouse funds in their initial submission to government in February.

The clearing house would seek to identify projects suitable for direct investment by the LGPS, perform initial due diligence, gather funding commitments, and act as agents on behalf of the LGPS once investments are made.

Monica Lai (Art by Dadu Shin)The Alfred P. Sloan Foundation has poached Monica Lai from Pfizer.

Lai, who has spent more than six years at the pharmaceutical giant’s $13 billion US pension plan, has been named senior investment director, the foundation confirmed. Her first day was June 20.

In her new role, Lai reports directly to CIO Elizabeth Hewitt, who joined the $1.8 billion fund from the Robert Wood Johnson Foundation last October.

As part of a four-person investment team, Lai will have responsibility over “all aspects of endowment management,” the New York-based foundation’s spokesperson told CIO. She will focus on asset allocation, risk assessment and mitigation, and manager selection and oversight, as well as portfolio performance analysis.

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At Pfizer, the Forty Under Forty alum most recently served as director of pension investments in charge of leading the team and broad portfolio activities. Previously, she was head of Pfizer’s alternatives portfolio consisting of hedge funds, private equity and debt, and real estate.

Lai also spent time at private equity firms Quadrangle Group and Harvest Partners. She holds a bachelor’s degree from Stanford University and an MBA from Dartmouth College.

Lai’s move is the second personnel change for the Sloan Foundation so far in 2016. In March, former Managing Director of Investments Michael Stambaugh left to lead the $820 million Carnegie Institution for Science.