chair: john forbes, john forbes consulting llp investment pooling: implications for property...

LGPS INVESTMENT POOLING:IMPLICATIONS FOR PROPERTY

Wednesday 9 November 2016

Chair: John Forbes, John Forbes Consulting LLP

Speakers: Simon Jones, Hymans Robertson LLPMike Dinsdale, Aberdeen Asset Management

Panel: Peter Hugh-Smith, Capita Asset ServicesJohn Styles, Knight Frank Investment Management LLP

Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority

AREF/IPF Seminar

Simon JonesSenior Investment Consultant, Hymans Robertsonsimon.jones@hymans.co.uk

November 2016

LGPS pooling

3

Criteria for pooling

SCALE

4

Achieving scale• £25bn minimum target set by Government (6 Funds)

• 8 provisional pools – majority have scale

• How to use scale?• Costs savings• Better governance• Sharing and building knowledge and expertise

• Greater engagement across funds and pools

5

The lay of the landBorders to Coast(£2.7bn property)

Lancs/LPFA(£0.9bn property)

London(£1.9bn property)

Central(£2.2bn property)

Northern Funds(£1.4bn property)

Brunel(£1.6bn property)

Wales(£0.7bn property)

ACCESS(£3.1bn property)

6

Understand the pooling model

Fund 1

Fund 2

Fund 3

Pooled vehicle(s)

Operator

POOL

Managers (internal/external)

Assets Assets Assets

Other service providers

Joint Governance Committee

Investment Committee

Who are the decision makers?

7

Impact of pooling model

8

Strategy

Growth

Income

Protection

UK / global

Active / passive

Hedge Funds

Diversified growth

LDI

FI govt. bonds

Corporate bonds 

Index‐linked

Debt strategies

Real estate

MAN

AGER

S

Alternatives

Equity

Fund decision vs Pool decision

Levels of decision making

Infrastructure

9

Timeline for change

Planning Keeping on targetTransition

Agree pool structureProject planning

Procure required servicesGovernance framework and 

joint policies

2016 ‐ 2018 2018 – 2033? 2033 ‐

Pooling vehicles up and running – FCA sign off

Efficient transition of assetsBuild up new allocations

Pool structures deliveringAdapt to client demandsGrowth in knowledge and 

expertise

10

Entering the pool without making a splash

Fund Pooled vehicle

• One key aim of pooling is cost savings

• Transition costs could wipe out savings or push out pay back period

• Example: Global equity to equity transition with low commonality could cost 5 years plus of savings

Co‐ordination within and across pools has potential to reduce costs

11

Finding a solution for illiquid assets

• Existing exposures will take time to unwind• Keep committing until…..• Important to manage timing:

‒ Exit impacting returns achieved‒ Entry impact prospective returns

• Big potential area of savings, but• What is the right model for each Pool?• Depends on:

‒ Level of expertise in Pool‒ Willingness to take more direct exposure‒ Being able to access attractive opportunities

1212

Thank youThe material and charts included herewith are provided as background information for illustration purposes only. It is not a definitive analysis of the subjects covered, nor is it specific to circumstances of any person, scheme or organisation. It is not advice and should not be relied upon. It should not be released or otherwise disclosed to any third party without our prior consent. Hymans Robertson LLP accepts no liability for errors or omissions or reliance upon any statement or opinion.

Copyright © 2016 Hymans Robertson LLP. All rights reserved

For professional investors only – not for public distribution

UK Local Government Pension Schemes PoolingProperty thoughts

9 November 2016

Michael Dinsdale

14

‘Pooling property is different …’

Property is:• ‘Difficult’• ‘Not a priority’• ‘Can wait’

But is it?• Complicated, yes, but:

– All have to think beyond self-interest– Look at ‘why property’?– Efficiencies could be significant– A school of thought that property could

be an ‘easy win’?

Property different? Yes, but not that different

...

15

The LGPS property landscape in England and Wales

Circa £14.4bn of

property AuM

Circa45%held

directly

Circa55%held

indirectly

Majority held indirectly

Mar 15 numbers

But analysing the data is difficult, so E&OE!Source: Pensionsperformance.com, Aberdeen Asset Management estimates, Mar 15

16

What will property look like in the Pools?

Single, national Pool?

Status quo?

Pool by Pool?

Indirect perhaps faces a more uncertain future

17

How the property holding type varies, Pool to Pool

The property ‘solution’ may vary Pool to Pool

… Source: Pensionsperformance.com, Aberdeen Asset Management, Mar 15

How much property? £0.7bn £3.1bn

Of which direct holdings are: £0.0bn £ ?

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How could it work?

Direct Segregated PMM Indirect

The Pool’s offering

Individual LGPS holdings The pool

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Transferred?

Liquidated?

This might take time …

The Pool’s offering

The Pool

Suitable to transfer?

Indirect holdings

Sales

Existing

From ‘D-Day’, existing mandates in ‘run-off’

ALL New Money

New allocations

Direct holdings

… and virtual pooling might be part of a solution?

20

… and you should look before you leap

Indirect• Don’t destroy value!• Who owns what?• Natural timescales

A plan is needed …

Direct• Costs, even without SDLT• Who is in charge?• Which ‘bucket’?

21

Business as usual – this process could take a long time

What next?

Unprecedented change – everyone is on a steep learning curve

Paying pensions is still why we are all here …

22

For professional investors only – not for public distribution.

Issued by Aberdeen Asset Managers Limited (“Aberdeen”). Registered in Scotland No.108419. Registered Office: 10 Queen’s Terrace, Aberdeen, AB10 1YG. Authorised and regulated by the Financial Conduct Authority in the United Kingdom.

This document is strictly for information purposes and should not be considered as an offer or solicitation to deal in any of the investments mentioned herein.

Investors should be aware that past performance is not a guide to future results. The value of investments, and the income from them, can go down as well as up, and an investor may get back less than the amount invested.The views expressed in this presentation should not be construed as advice on how to construct a portfolio or whether to buy,retain or sell a particular investment. The information contained in the presentation is for exclusive use by professional customers/eligible counterparties (ECPs) and not the general public. The information is being given only to those persons whohave received this document directly from Aberdeen and must not be acted or relied upon by persons receiving a copy of this document other than directly from Aberdeen Asset Management. No part of this document may be copied or duplicated in any form or by any means or redistributed without the written consent of Aberdeen Asset Management.

The information contained herein including any expressions of opinion or forecast have been obtained from or is based upon sources believed by us to be reliable but is not guaranteed as to the accuracy or completeness.

Property is a relatively illiquid asset class, the valuation of which is a matter of opinion. There is no recognised market for property and there can be delays in realising the value of assets.

Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Professional advice should be obtained before making any investment decision.

Important information

LGPS INVESTMENT POOLING:IMPLICATIONS FOR PROPERTY

Wednesday 9 November 2016

Chair: John Forbes, John Forbes Consulting LLP

Speakers: Simon Jones, Hymans Robertson LLPMike Dinsdale, Aberdeen Asset Management

Panel: Peter Hugh-Smith, Capita Asset ServicesJohn Styles, Knight Frank Investment Management LLP