West Yorkshire’s mixed approach to collection is highlighted
Over the past eight years, the UK’s 86 local authority pension schemes (LGPS) have consolidated their assets into eight large pools, most of them under the umbrella of newly created FCA-regulated asset managers, reintroduced their portfolios and transferred staff. To shared offices. And nurturing new cultures in life. Some have taken a different approach, including the £18bn West Yorkshire Pension Fund for local government beneficiaries in the north of England.
West Yorkshire has pooled its allocations to private equity and infrastructure into Northern LGPS, a £29.3bn pool of neighboring funds in Greater Manchester and a £10.8bn Merseyside Pension Fund, which together make up three of the country’s largest superannuation funds. Like other complexes, this process has generated efficiencies through resource sharing, and according to CEM’s annual performance and cost benchmarking, LGPS Northern’s costs are well below the global peer group average.
But when it comes to the rest of the West Yorkshire portfolio, apart from two joint mandates worth more than £10bn each, the pension fund continues to invest the bulk of its assets through its own in-house team of 20 based in Bradford. office. Two hundred miles to the north of policymakers in London, heaping pressure on the pace and scale of the rollout as he seeks to get LGPS to invest more widely in the UK economy.
The government has just closed a consultation on pooling progress and processes that will highlight the northern and West Yorkshire LGPS approach, admits Leandros Kalsperas, West Yorkshire’s IT director, tasked with defending West Yorkshire’s reluctance to pooling.
“There has to be an element of people thinking, why should Northern be able to withstand the pressures that other pools have felt. But within Northern LGPS, we have a range of low-cost listed mandates as well as direct experience and allocation expertise across private markets that have proven successful .
Kalsperas says West Yorkshire’s proud heritage in inward investment management aligns with the government’s goals to promote inward investment management within parks, and a level-up agenda designed to end wealth and opportunity disparities in the UK by creating financial services jobs outside of London.
“The government did not create the pooling system simply to act as an intermediary for managers of trillion-dollar commercial assets,” he says. “If inward investment management is an important part of efficiency, scaling up and creating centers of excellence outside London, then we are certainly playing our part.”
He also does not believe the current structure will hinder West Yorkshire’s ability to access alternative opportunities, a portfolio he is seeking to build. West Yorkshire invests in private markets through GLIL Infrastructure, which manages the infrastructure assets of both another LGPS group as well as Nest’s DC assets, and via a private equity syndicated vehicle, NPEP.
“In private equity and infrastructure, we have a strong and workable aggregation structure,” he says. “The biggest challenge for the UK going forward is simply creating opportunities.” He says it is difficult to find stable operating income assets for investors like West Yorkshire who have a total return perspective and are able to handle long-term returns.
Resourcing a larger team can be easier with more assets under management, but West Yorkshire has a stable team and culture that should not be easily disposed of and should be leveraged for the greater good. The success of the pool depends mostly on the alignment of strategies and fundamental approach to investing rather than total assets under management, and size alone does not necessarily mean lower costs.
“If I had to choose, I would rather have a stable investment culture and a stable team, rather than just be able to put up big numbers,” he says. In short, he says West Yorkshire’s strategy is no different to other sophisticated asset owners who have in-house expertise and strategic external partnerships.
West Yorkshire is also committed to the Government’s ambition that clustering will support broad-based economic growth in the UK. Kalisperas wants to fill and build out its alternative portfolio, which is currently 5 percent short of its target weight. “This will likely involve the reallocation of some UK listed equity to UK private equity, UK private debt and ventures.” He wants the enhanced allocation to focus on local impact in the region, with infrastructure, affordable housing and climate investment at the top of the list. He is also interested in the technological innovation coming out of UK universities.
Unlike the other two funds in the Northern pool representing major cities, West Yorkshire has been unable to invest sufficiently to boost the local economy because it has been difficult to generate opportunities in its more diverse set of local economies. “I suspect developers and commercial asset managers find it easier to provide local opportunities to pension funds in Merseyside and Greater Manchester, but we simply have to work harder to make sure people know we are open for business,” he says.
This hard work includes creating an impact structure and strategic framework that will allow West Yorkshire to consider investment types that will generate a return but are unlikely to reach the return target at an overall portfolio level. “There has to be a place for investments that return less than the total return target, but have an impact. If not, bonds will never be in anyone’s portfolio. Someone could say I want us to do more in West Yorkshire and say Another person We don’t give money – both opinions are correct, but they are not mutually exclusive.
Along with governance and measurement systems, it included changes to direct reports in the investment team, and ensuring that investment opportunities are not looked at by just one team, something Caliberas worked on during his time at USS between 2010 and 2016. More areas of influence within the investment team and ensuring that it’s not just one person looking at opportunities coming from our partners.
However, despite the many benefits of West Yorkshire’s investment approach, it suggests that the Fund has not kept pace with the expansion of the investment world and global market opportunities. His reallocation plans will also focus on fixed income and credit, where he says West Yorkshire remains too narrow in its current view of investment opportunities. Emerging market debt, asset-backed securities or collateralized loan obligations are corners of the market that the fund simply does not touch. “We must try to find ways to ensure that we are allocated to a broader range of opportunities in the global market.”
About 70 percent of the new index is in economic growth-sensitive allocations that include public and private stocks. Twenty percent of it is in fixed income and credit instruments, 5 percent is in property, and 5 percent is in alternatives.
Kalisperas has only recently put his feet under the table but he already knows what he wants his legacy to be. “While I’m proud of my appointment, I want my successor to be local, which is hard to do if people are only looking at one piece of the puzzle. I want someone from the current team to apply for the job when I leave, and if they’re the best candidate, get it.” .
Meanwhile, West Yorkshire is waiting for the results of the consultation to provide clarity and whether its hybrid approach to grouping is enough to placate the government’s masters in London.