A group of seven local government schemes are working together on an initiative for passively managed assets.

The group, which includes Leicestershire, Cheshire and Staffordshire, are establishing a joint procurement for passively managed assets that could result in the appointment of a single management firm.

According to a report prepared for Leicestershire's local pensions committee meeting, the group members have been working on the initiative for a few months.

The report says that the seven administering authorities believed together they have "sufficient critical mass" to jointly procure passive investment management services at a cost that is significantly lower than the individual costs funds are currently paying.

Other funds "will be welcomed if they want to join" provided they do not "slow down the timetable" as the seven authorities hope to have their arrangement in place by the end of October.

The move comes after Local Government Association head of pensions Jeff Houston revealed that the Treasury had indicated it wants to see proposals for pooled investment structures bringing together approximately ?30bn each.

However it predates the Summer Budget announcement that LGPS funds most come forward with proposals to invest via collaborative vehicles this year or have collective investment structures imposed on them.

Passive assets

The report also said that all funds were likely to switch to using a single firm to manage the passive assets.

Cheshire and Staffordshire's early talks with potential investment managers suggest that they can expect a reduction of about 30% in fees.

The annual saving to the Leicestershire fund alone would be GBP 300,000, the report said.

The report added that the decision to appoint a single passive manager would be delegated to Leicestershire County Council.

The three named funds all have large mandates with Legal & General Investment Management (LGIM) for passively managed equity funds.

Leicestershire has about GBP 1bn in passives, mostly managed by LGIM (one-third of its entire fund), while Staffordshire holds GBP 152m and Cheshire GBP 741m in LGIM's passive pooled funds.

First published 04.09.2015

Lindsay.sharman@wilmingtonplc.com