Chris Rule, chief executive officer of Local Pensions Partnership Investments (LPPI), the asset management arm of the UK investment pool, has urged the asset management industry to work together to achieve the goal of full pooling of assets, highlighting the benefits of cost savings for Local Government Pension Schemes (LGPS).
The call follows LPPI’s announcement today of its increased annual net cost savings by more than £10m (€11.6m) per annum to £39.1m (in the year to 31 March 2022). Last year, it had claimed it saved its LGPS clients £74m since the asset pooling company was launched in 2016.
Rule said: “LGPS pension pooling was sparked by the belief that public pension funds working together can achieve greater scale to access improved opportunities for investment and create costs savings, whilst at the same time ensuring the future pensions for millions of workers across the country are secure and affordable. LPPI’s cost savings and performance demonstrate that pooling can and is working.”
The net costs LPPI has saved through pooling, and a focus on direct investments and internally-managed portfolios, increased from £28.2m to £39.1m, bringing cumulative savings up to £113m since its inception in 2016, it was announced.
The increase means LPPI has revised up projections and is now expecting to deliver net cost savings of more than £200m by 2025, more than £350m by 2030 and more than £500m by 2035.
The savings figures come as LPPI continues to deliver investment performance with an average annual return of 8% over five years to 31 March 2022, the highest of any pool, according to the PIRC Local Authority Pensions Performance Analytics Annual Review 2021-2022.
The cost savings figures are reported to the Department for Levelling Up, Housing and Communities (DLUHC) annually. LPPI was the first LGPS pool to publicise its net cost savings.
“Understanding the impact that pools are having on LGPS pension portfolios is crucial in keeping the original pooling objectives alive and enabling further innovation and an acceleration to fully realise the benefits for which pooling was intended,” said Rule.
LPPI has pooled 100% of client fund assets, enabling access to attractive investments in a cost-effective manner, particularly in private markets, and increasing buying power to negotiate fund manager discounts.
“We have successfully blended dedicated in-house specialist expertise, delegated implementation, and co-operation with like-minded investors to fully exploit the benefits of pooling. Our model has enabled our partner funds to continue to control their strategic investment activity, including determining their asset allocation, whilst also creating access to an aligned expert adviser with in-house implementation expertise at scale,” Rule added.
“Across the LGPS there is much more to do, and I encourage all in the sector to work together to achieve the goal of full pooling of assets within the respective pools.”
LPPI invests the assets of Lancashire County Council, London Pensions Fund Authority and Royal County of Berkshire. LPPI operates pooled investment vehicles across seven asset classes and is increasingly bringing more investment management in-house to manage assets directly.
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