UK's Coal Funds Create Investment Subsidiary to Improve Governance, Returns

(August 22, 2011) — In a mission to improve its governance and returns, Coal Pension Trustees has founded a standalone investment subsidiary, Financial News has reported.

Coal Pensions — which manages the £20 billion pension funds of the UK’s formerly nationalised coal industry — built the team in an effort for its trustees to have an in-house source for market expertise. The legal position of the in-house investment office will be clarified following approval by the Financial Services Authority in June.

According to the news service, internal experts can also challenge advice given by the schemes’ external consultants – Towers Watson and Mercer.

The drive to boost in-house expertise in not unique to the UK. In recent years, the pursuit of added in-house capabilities has been especially prevalent among Canadian funds. Late last year, for example, the Caisse de Depot et Placement du Quebec, Canada’s second biggest pension-fund manager, reported plans to boost staff at its private equity unit by around 25% in 2011 as it pursues its mission to contribute to the economic development of Quebec.

Similarly, the Ontario Teachers’ Pension Plan (OTPP), which won aiCIO’s Industry Innovation Award last year for public pension funds with over $15 billion in assets, boosted its in-house asset management unit to better compete for talent. “We are honored to receive this recognition,” Neil Petroff, Executive Vice-President, Investments and Chief Investment Officer at Teachers’, said in response to its win at aiCIO‘s awards event in early December. “We have a highly skilled investment team at Teachers’ who have helped build a reputation for innovative, in-house asset management that has long distinguished our investment program.”

“We were the first with a private equity direct investment team, and were among the first to invest directly in infrastructure,” OTPP spokesperson Deborah Allan told aiCIO, noting the Canadian fund’s position as a pension fund leader in direct investments. Further evidence of OTPP’s role as a leader in boosting its internal private equity team comes from the October 18 appointment of Jane Rowe, who assumed her position as senior vice-president of Teachers’ Private Capital, the private investment department of Teachers’.

In the US, the State of Wisconsin Investment Board (SWIB) reported last September that it was looking to transfer $3.9 billion of externally managed international equity assets in-house, reflecting the financial pressure on pensions to increase the in-house management of assets and boost efficiency. “We’ve always had in-house management and we’ve increased it from 20% in 2007 to over 41% as of the end of last year,” Vicki Hearing, public information officer at the State of Wisconsin Investment Board, told aiCIO.