Welsh pensions

Welsh councils lead pensions revolution

02 January 2019
A photo of Welsh countryside

There are currently 88 local government pension funds in the UK, all employing their own investment managers and working hard to meet their obligations to pensioners. Between them they manage about £250 billion, but the disparate nature of the way they are organised can limit the buying power of individual schemes and means there is a lot of duplication of effort.

That is why the government decided in 2015 to try and reduce investment costs by getting the funds to combine their assets into larger investment pools. The plan to create eight regional funds across England and Wales, each with aggregate assets under management ranging from c.£15 to £35 billion, should not only create efficiencies and economies of scale but will also mean the funds will in time have the capacity to become much bigger investors in UK infrastructure, and help the economy grow.

In late 2016, Burges Salmon was appointed to work with the Wales Pension Partnership (WPP) – which brings together the assets of the eight council funds based in Wales – to assist in getting its investment pool off the ground. At the start of 2018, after a rigorous procurement process, WPP broke new ground in becoming the first pool to appoint an external operator to establish and run its collective investment vehicle for Welsh pensioners.

Burges Salmon’s cross-firm team was led by Funds and Financial Regulation partner Tom Dunn. The mandate required the firm to provide a joined-up team that included expertise in FCA regulated funds, tax, public sector procurement and local government, and it had to deliver for the client against the clock: advising on the governance arrangements, building the complex procurement specifications, advising on the process and evaluation criteria, finalising the legal agreement with the operator and advising on the FCA application.

Burges Salmon experts were always on hand in a complex procurement exercise that resulted in the appointment of Link Fund Solutions to establish and operate a tax-transparent FCA-authorised UK collective investment vehicle to facilitate the pooling.

'The governance arrangements between the eight authorities, and how they would work together on a practical basis, were very important,' says Tom. 'So were the agreements on how decisions would be made and the committees that needed to be set up. This is a novel area for public procurement, involving FCA-authorised vehicles, so we had to be careful about going through the right procedures.'

It was agreed that the investment vehicle would have sub-funds in a range of asset classes, to meet the needs of the different investing authorities and enable them to continue to execute their own asset allocation strategies. Link will also appoint a number of investment management firms, but the funds will retain full control over strategic asset allocation decisions.

Anthony Parnell, Treasury and Pension Investments Manager at Carmarthenshire County Council (the host authority), comments: 'Burges Salmon was instrumental in the procurement exercise for the appointment of Link as the operator for the Wales Pension Partnership. We would like to thank them, on behalf of all eight funds, for their expertise and professionalism during the challenging timetable that was given to them.'

Tom and his team continue to work closely with the councils on the next stage, which will see the addition of new sub-funds, the establishment of new structures for illiquid assets, and ultimately delivering the pooling benefits including significant fee savings for the benefit of public sector pensioners.

Burges Salmon was instrumental in the procurement exercise for the appointment of Link as the operator for the Wales Pension Partnership.
Anthony Parnell, Treasury and Pension Investments Manager at Carmarthenshire County Council

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