One of the UK's largest public sector pension funds has spoken out in support of London Mayor Boris Johnson's calls for a merger of all public sector pension funds.

The ?4.9bn London Pension Funds Authority (LPFA) said it supported the mayor's call for tens of thousands of public sector schemes to merge.

Edmund Truell, chairman of the LPFA said: "The overhead costs of running a large number of pension funds can run into billions of pounds. We have been trying to go direct with our investments and cut the layers of costs. I would consider it 'job done' if we were absorbed into a sovereign wealth fund."

The suggestion of the merger came on Monday when Boris Johnson wrote a column in the Telegraph stating that an estimated ?5bn per year could be saved through a merger of around 39,000 public sector funds. The mayor said that pooling local authority pension funds alone could create a ?180bn fund which could be used on schemes to support public housing and transport.

"If we pooled our pension fund assets, we would be able to get those schemes going – from new roads to new tunnels to hundreds of thousands of new homes for sale or rent. To say nothing of the new four-runway hub airport we need," he wrote.

However, support for the mayor is far from unanimous. Pensions investment advisers said it was far from perfect that so many small funds manage their investments individually but they would be concerned about the creation of one huge fund.

"Many local authority funds are too small to be able to make individual investments in alternative assets or to have bespoke liability-driven risk management strategy," said pensions expert Ros Altman.

"However I would be concerned about too much concentration as well and would prefer to see a number of large funds, not just one or two."

The National Association of Pension Funds (NAPF) declined to comment on the mayor's suggestion but its response to government proposals to merge funds for the Local Government Pension Scheme earlier this year called for a different approach.

"The NAPF supports the government in its wish to secure a LGPS that delivers good outcomes for its employers, local taxpayers and scheme members. But the government is mistaken in thinking the LGPS can be treated as a homogenous whole when it is comprised of 89 different funds, some of which already perform extremely well," said Joanne Segars, chief executive of NAPF.

"A subtler and more intelligent approach is required if we are to ensure funds with good performances are not hamstrung to help those that perform poorly."

First published - 09.10.2014

lindsay.sharman@wilmington.co.uk