Lancashire County Pension Fund (Lancashire County) and the London Pensions Fund Authority (LPFA) today announced the initial stage of an asset-liability management partnership covering assets potentially worth more than £10 billion (€12.6 billion; $15.7 billion).
The two UK pensions have yet to thrash out the exact details of the arrangement – in particular whether all of the assets they own will be part of the common pool – but say the platform will help them reduce costs and access fresh investment opportunities in a market that remains highly fragmented.
During an interview with Infrastructure Investor, LPFA chief executive Susan Martin explained the initiative came about as both institutions engaged with the UK government to try and come up with a plan to increase fund performance at local government pensions.
She said the ambition of the partnership was to help bridge funding deficits and ensure pension funds had the means to meet their long-term liabilities, some of which would last well into the coming century.
She admitted details of the arrangement were still to be reached but underlined the ambitious remit of the initiative, designed to encompass all areas involved in the running of the pension funds, including pension administration. “It’s not enough to just be looking at the assets side of the equation. You also have to take into account liabilities.”
Importantly, she argued, pooling resources together would allow both pensions to make greater forays into illiquid assets, notably infrastructure. “At the moment the government is talking to large sovereign funds from Qatar, Abu Dhabi or China for large projects like HS2 or the Thames Tideway Tunnel. Gaining greater scale should allow us to sit at the table with them for some of these projects.”
The partnership might open up to other institutions in the future, although for now the focus is on setting up the platform, determining its priorities and making it work before thinking of expansion, she said. It was too early to ascertain what allocation LPFA would aim for once the platform is up and running but she reckoned the target range would most likely edge upwards.
With about £4.9 billion under management, LPFA is London’s largest local government pension. It pulled out of the Pensions Infrastructure Platform (PIP), a not-for-profit initiative launched by the National Association of Pension Funds (NAPF) that aims to collect up to £2 billion from UK institutions, last February, citing concerns over risks and pricing.
It aims to have 30 percent of its capital invested in illiquid assets by 2016, a target allocation that might increase to 40 percent as the partnership gathers pace, said Martin. The institution is looking to invest in sectors including brownfield housing and public private infrastructure via consortia and co-investment platforms.
Infrastructure has also been on the radar of Lancashire County, which manages around £5.2 billion. The institution is exposed to the UK solar sector via debt instruments and is a known investor in EQT Infrastructure Fund II, an energy and transport-focused vehicle closed at the beginning of last year.