London CIV launches with four asset managers

The London borough pension funds’ common investment vehicle (CIV) is now fully authorised and has announced that it is working with four asset managers; Allianz Global Investors, Legal & General Investment Management (LGIM), Baillie Gifford and BlackRock.

Speaking at the Westminster Question Time event on LGPS collaboration and the London CIV, Hugh Grover, chief executive of the London CIV said that 31 out of 33 London boroughs have not signed up, with two still undecided. In total, the London borough pension fund funds control £29 billion in assets and pay £109m in annual investment fees to 87 different asset managers, with 253 separate investment contracts between funds and the managers. The London CIV is looking to open its first subfund by Christmas 2015, with eight more subfunds expected to open by the end of the financial year.

The first four asset managers to work with the London CIV – Allianz, LGIM, Baillie Gifford and BlackRock – work with 20 of the London borough funds and in total manage £6 billion in assets, which could move to the CIV if the boroughs move their assets to the subfunds. The first range of subfunds comprise a diversified growth fund, two active global equity funds and six passive equity funds.

Under the London CIV structure, all London boroughs are equal shareholders in the London CIV, and both elected officials and council officers are represented on two committees which set out the overall policy. An authorised contractual scheme (ACS) structure has been set up to run the pooled assets; it will appoint fund managers and, in time, could undertake in-house investment activities. Grover commented: “We can make the ACS open to other investors in the LGPS and we have had some interesting conversations. In theory, it is open to any qualifying investor from the public or private sector, but the focus is on the LGPS at present”.

Grover added that the four launch managers were those most enthusiastic about working with the London CIV. Investment in it will be voluntary for the 31 administering authorities and further subfunds for fixed income, alternatives and property are planned. The London CIV is expected to save up to £3m in fees from the first four managers, as well as making investment more tax efficient and giving greater economies of scale and leverage on custody costs, securities lending, brokerage and currency costs, as well as savings in procurement costs.