Pension scheme collaboration leads to lower passive fees

Fees calculatingSeven local authority pension funds in the UK have collaborated to invest £6.5 billion (€9.2 billion) in pooled passive funds managed by Legal & General Investment Management (LGIM) and negotiated fee reductions of more than half.

The investment consultant that led the appointment, bfinance, says the appointment is a “landmark” move that shows how pooling of assets can be used to the benefit of the Local Government Pension Scheme (LGPS).

The seven pension funds that are all members of the LGPS are Cheshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Warwickshire and Worcestershire.

Overall fee savings will exceed 50%, says bfinance.

The investment constitutes a mixed mandate spanning passive equity, passive fixed income and smart beta strategies in the UK and internationally. The funds will continue to track the indices that they were using prior to the appointment and have not had to compromise their investment strategies, the consultant says.

The investment came about five months after the schemes agreed to collaborate.

LGIM’s appointment follows an evaluation that assessed manager expertise in passive investment, along with the quality of transition management and level of fees. Bfinance says fund offerings across the industry were very high and that selection generated significant price tension.

An LGPS spokesman says: “Joining forces with other pension funds has enabled us to unlock significant savings and gives clear and tangible evidence of what can be achieved if LGPS funds are willing to work together and collaborate as equals..

Pal Sarai, head of client consulting, at bfinance, says significant interest from other local government pension schemes is expected.

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