PROGRESS UPDATE - Cheshire Pension Fund€¦ · • Currently recruiting Investment Director,...

LGPS CENTRAL Ltd. PROGRESS UPDATE Joanne Segars Chair, LGPS Central Ltd. June 29th 2018

LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Floor 5 Mander House, Wolverhampton, WV1 3NB.

ACHIEVEMENTS TO DATE

Benefits of scale (at least £25bn in assets)

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• FCA approval

• Authorised Contractual Scheme approval

• Went “Live” on 3rd April 2018

• £5.5bn ACS under management

• £6.5bn Segregated funds under management

LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Floor 5 Mander House, Wolverhampton, WV1 3NB.

RECRUITMENT UPDATE

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• 43 roles filled

• Staff target of 65

• Head of HR & Business Services has now started

• Currently recruiting Investment Director, Equities

LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Floor 5

Mander House, Wolverhampton, WV1 3NB.

INVESTMENT UPDATE



• Work on product development, in close collaboration with our Partner Funds, continues

• Emphasis on cost reduction, investment performance and

responsible investment & engagement • Monthly client reporting is operational • Planned expansion of investment team is scheduled with the

recruitment of Senior Portfolio Managers

ENGAGEMENT



• Engagement activity between LGPS Ltd, Partner Funds and Stakeholders is a high priority

• Both traditional and digital forms of engagement will be used to improve communications

• The Company is taking a collaborative approach to working with Partner Funds and Stakeholders

• Exercise is currently underway to listen to groups and individuals and learn how the Company can best engage on both a one-to-one and collective basis

KEY DELIVERABLES 2018/19



• Delivery within budget

• Design and delivery of cost saving model

• Design and delivery of investment performance monitoring model

• Delivery of the Company’s Responsible Investment & Engagement Policy

• Completion of Target Organisational Structure

• Completion of Target Operating Model

• Creation of Client Servicing and Shareholder Engagement Plans

• Product Development and Delivery plans for 18/19 and 20/21

• Design and delivery of the Compliance Framework, Compliance Monitoring Plan, Risk Framework and Risk Monitoring Suite

• Design and Delivery of Company Handbook

LGPS CENTRAL POOL PRODUCT DEVELOPMENT AND ASSET TRANSITION PLAN Rachel Brothwood Director of Pensions, WMPF Joanne Segars Chair, LGPS Central Ltd June 29th 2018

GOVERNMENT CRITERIA

Benefits of scale (at least £25bn in assets)

Strong governance and decision making

Reduced costs and excellent value for money

An improved capacity and capability to invest in infrastructure

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PRODUCT DEVELOPMENT AND ASSET TRANSITION PLAN 2

“…all Funds must fully participate in a pool..” “...all pools must have an FCA authorised operator…” “…with minimal exceptions where there is a value for money case, …[funds] must delegate manager selection to the operator…”

Marcus Jones MP, former Minister for Local Government, letter of August ‘17

REGULATORY BUSINESS PLAN

• Phased launch of ACS sub-funds • Other collective investment vehicles where ACS not viable • Advice and expertise, assisting Partner Fund management of assets ahead of transition • Projected aggregate savings in excess of £250 million over 16 years


In partnership with the Company, LGPS Central Ltd, providing solutions to enhance implementation of investment strategy, at reduced cost

SUB-FUND & SERVICE CRITERIA

• Meeting Funds’ strategic asset allocation needs • Significant scope of cost savings • Substantial scale (AUM) • Resources and systems in place • Clarity on vehicle structure essential to to enable delivery • Robust value for money “test” • Efficient delivery, potentially in partnership or cross-pool


Developing the right products and the commitment of Partner Fund assets are critical to delivery of the projected savings

OUTLOOK FOR FUND LAUNCH


LGPS Central Sub-Fund Participation (potential)

LGPSC Sub-Fund Internal/ external

ACS/Alt Structure

Cheshire Derby Leics Notts Shrop Staffs West Mids

Worcs WMITA

Global equities E ACS

Emerging market equities

E ACS

Corporate bonds E ACS

UK internal active equities

I ACS

Global internal active equities I ACS

Private equity I/E Alt Factor-based equity fund

I ACS

• Outcome of “recalibration” and more detailed planning for launch • Other sub-funds in development pipeline including multi-asset credit and infrastructure fund • Investment through ACS, projected to increase over £13bn during first year

Anticipated pipeline for 2018/19

PRODUCT DEVELOPMENT CYCLE


Investment Committee

ideas

Head of Client

Services

Partner Fund ideas

Product delivery

Product Development

Plan

Practitioners Advisory

Forum

IMPLEMENTATION


LGPS Central Sub-Fund Launch Timeline

• PFs & LGPSC identify strategic needs for a new sub-fund • Product design • Resource planning • Business case • Costs & savings

Product Planning

1-2 months

Procurement for External Mandates

Legal, FCA and Operational Readiness Product Delivery

3-5 months 2-3 months 1-2 months

Planning Procure- ment

Timeline for sub-fund launches – internal ACS approx. 4 months, external ACS and alternative structures 8 months +

• Final mandate agreed • PQQ & ITT • Due diligence on shortlisted providers • PAF-dedicated liaison groups • Providers selected • Pricing structures agreed with PFs • Outcomes presented to PFs

Sub- fund

• Legal work & prospectus development • FCA approval process • Preparations for launch with ACS provider • Close out final issues with PFs • Assessment of costs • Committee approvals • Transition manager appointment

Delivery

• Sub-fund information days • Custody transition arrangements & paperwork • Commitment to AUM • PF resource and engagement • Sub-fund launch

SUMMARY


• Collaborative approach to development • Focused on delivery of cost savings, prioritised to meet fund requirements • Work ongoing to develop vehicle structure and mandates - plan will continue to evolve • Pace of development and scale of commitments will impact realised cost savings • Requires all parties to dedicate time and resources to enable successful development and launch • Support through discretionary and advisory management agreements available in the interim LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England.

Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB

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The Future of the LGPS

Central Pool Joint Committee - Training Day

The Local Government Pension Scheme

Everything you need to know!

Bob Holloway Pensions Secretary Scheme Advisory Board

The Agenda…………………..

Pooling

Setting the scene

Austerity and Brexit

2016 valuation

Cost Control

Investment regulations

MIFID II

Cost Transparency

Data Quality

SAB workstreams

Questions

Pooling

Pooling

• Why? • Rationale? • Aspiration • Methodology • Who does what • Timeframe • Break-even • Infrastructure • Life after transition

Facts about the scheme Scheme expenditure - £11.8 billion

Expenditure on benefits - £9.5 billion Total scheme income - £14.7 billion

Employer contributions - £7.4 billion (50%) Employee contributions - £2.1 billion (14%) Investment income, etc - £5.2 billion (27%)

Market value of funds - £259 billion Total scheme members - 5.6 million

Active members - 2.0 million Deferred members - 2.0 million Pensioner members - 1.6 million

Total administration cost - £1.03 billion Investment costs - £866 million Administration costs - £169 million (Source – MHCLG SF3 statistical return 2016/17)

You are not alone!

Parliament* HM Government ONS

MHCLG

LGPS Advisory Board

LGPS Administering Authorities

LGPS Employers

LGPS Members

HM Treasury

GAD

Actuaries

Custodians

Asset Managers

External Auditors

CIPFA

DWP

TPR

Other bodies

Asset Pools

Local Pension Boards

The situation in Government

Queen’s speech – Brexit to dominate Minority government – contentious legislation may be

abandoned Existing difficulties LGPS regulatory changes likely to be hard fought! Impacts?

Fair Deal – fresh consultation promised Exit payment reform The Brewster and Walker judgments General upkeep of regulations – foot on the brake!

2016 funding valuation

Largely a good news story…

2013 2016 Change

Assets £180.5bn £216.4bn +£35.9bn

Liabilities £227.3bn £253.6bn +£26.3bn

Funding ratio 79.4% 85.3% +5.9%

Primary contribution

rate 16.6% 17.2% +0.6%

2019 ??????????

Cost Management

Why manage scheme costs?

Twin process – HM Treasury + SAB

The HM Treasury arrangement

The SAB process

Interaction between the two arrangements

No impact on local valuations/employer rates

Investment factors excluded

Cost control – the targets

19.5% OVERALL

EMPLOYER

EMPLOYEE

15.3%

EMPLOYER

SAB PROCESS HMT PROCESS

6.5%

13%

STATUTORY INSTRUMENTS

2016 No. 946

PUBLIC SERVICE PENSIONS, ENGLAND AND WALES

The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016

Made - - - -----------------------21st September 2016

Laid before Parliament ----- 23rd September 2016

Coming into force - - - - - - - - - 1st November 2016

New Investment Regulations

New Investment Regulations What’s in, what’s out

Power of Direction (“the intervention power”)

Investment Strategy Statement

The role of new statutory guidance

Judicial review finds against MHCLG – MHCLG appeals!

Who makes investment decisions?

Non financial factors in decision making

Responsible Investment

Fiduciary duty The legal vacuum Law Commission’s recommendations Financial and Non-Financial considerations The “twin test” Significant financial detriment to the fund Scheme member support

MHCLG statutory guidance Government consultation on Responsible Investment SAB guidance to follow in Summer 2018

MIFID II

Markets in Financial Instruments Directive

Protection against miselling of financial services

Retail v Professional clients

LGPS funds currently treated as professional clients

Not all local authorities behave themselves!

MIFID II = more protection for local authorities

LGPS funds to be treated as retail clients

Facility for fund managers to opt up retail clients

Quantitative and Qualitative tests

MIFID II took effect in January 2018

Can funds afford not to opt up?

Cost transparency is here…

So far… 40 investment managers have signed up

representing about 60% of scheme assets

Data Quality

Poor data costs – big money! Actuaries will always err on the prudent side Pensions based on guestimates, incomplete data Pensions Regulator is on the case! Better awareness and education Backed up by legislation? Difficult with scarce resources Data cleansing tools Spend to save

Scheme advisory board workstreams

Academies

Third Tier Employers

Surveys

Ill-Health Review

Academies and 3rd Tier Employers’ Projects

Hybrid scheme – LA (500) and Non LA employers (14,000) Many private sector and quasi private sector employers Concerns about orphan liabilities left with LGPS funds Concerns about poor administration and data quality Concerns about unfair contribution rates Concerns about appropriate exit strategies Two scheme advisory board projects Recommendations to MHCLG Ministers Non statutory, statutory and extra statutory options.

50/50 Survey

Savings reflected in cost management arrangement (0.7%)

Based on 10% take up rate

Actual take up rate less than 1%

Creates a cost pressure (0.7%)

High proportion of high earners

Poor communication a major factor

SAB approves a programme to raise awareness of the option

Balance between awareness and encouragement

Local Pension Board Survey

Boards to be established by 1st April 2015 Two years on – need to test compliance and effectiveness Survey conducted between May and September 2017 High levels of compliance But how high is the bar? Are two meetings a year sufficient? Is a board of four sufficient? How do we achieve consistent best practice? Results to be published shortly Option to make recommendations to MHCLG Ministers

The information contained in these slides has been prepared by the LGPC Secretariat, a part of the Local Government Association (LGA). It represents the views of the Secretariat, based on our current understanding of the law. It should not be treated as a complete and authoritative statement of the law. Readers may wish, or will need, to take their own legal advice on the interpretation of any particular piece of legislation. No responsibility whatsoever will be assumed by the LGPC Secretariat or the LGA for any direct or consequential loss, financial or otherwise, damage or inconvenience, or any other obligation or liability incurred by readers relying on information contained in these slides.

Disclaimer

FOR PROFESSIONAL CLIENTS ONLY

LGPS Central Limited Responsible Investment and Engagement Update Michael Marshall Director of Responsible Investment & Engagement June 2018

AGENDA

2 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 10425159. Registered office: Mander House, Mander Centre, Wolverhampton, WV1 3NB.

• LGPS Central’s RI & Engagement Framework

• Industry updates

• RI&E integration

• Engagement & stewardship themes

• Q&A

RI&E FRAMEWORK – RECAP & RECEPTION

3 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 10425159. Registered office: Mander House, Mander Centre, Wolverhampton, WV1 3NB.

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PARTNERSHIPS

LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 10425159. Registered office: Mander House, Mander Centre, Wolverhampton, WV1 3NB.

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INDUSTRY UPDATES


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HOW OUR VOICE SHAPES THE INDUSTRY


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RI&E INTEGRATION


Active Equities Passive Equities

Fixed Income Infrastructure Property

Private Equity

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ENGAGEMENT & STEWARDSHIP THEMES


$32tn AUM

$9tn AUM • 25% FTSE 100

• 20% FTSE 250

• Energy sector

• Co-lead 2 UK banks

• c60 companies in set

• Cyber risk & data


This document has been produced by LGPS Central Limited and is intended solely for information purposes. Any opinions, forecasts or estimates herein constitute a judgement, as at the date of this report, that is subject to change without notice. It does not constitute an offer or an invitation by or on behalf of LGPS Central Limited to any person to buy or sell any security. Any reference to past performance is not a guide to the future. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable, but LGPS Central Limited does not make any representation as to their accuracy or completeness and does not accept any liability from loss arising from the use thereof. The opinions and conclusions expressed in this document are solely those of the author. This document may not be produced, either in whole or part, without the written permission of LGPS Central Limited. All information is prepared as of 25.06.2018. This document is intended for PROFESSIONAL CLIENTS only. LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England Registered No: 10425159. Registered Office: Floor 5 Mander House, Wolverhampton, WV1 3NB

DISCLAIMER

PROGRESS UPDATE - Cheshire Pension Fund€¦ · • Currently recruiting Investment Director,...

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