The Strategic Director of Finance, Governance and Support submitted a report to follow up the reports on LGPS Investment Reform presented at previous meetings and inform Members of the Teesside Pension Board (the Board) of the latest developments in setting up the new Pool (BCPP - Border to Coast Pension Partnership).
The Board was advised that the following costs had been identified:
To set up BCPP, particularly if it was required to be regulated by the Financial Conduct Authority (FCA) as anticipated;
To transfer the Funds assets to the chosen Pool; and
Once up and running, there would be management expenses for managing the new Pool shared by the Pools partners.
A detailed estimate of the implementation costs was set out in the BCPP proposal (page 38). Within this estimate, a worst case scenario cost to set up BCPP of approx. £4.2 million had been calculated. This estimate was provided by Deloitte as part of their cost benefit analysis for BCPPs final submission. This cost would be shared equally among the 12 shareholders/partners of BCPP, which equated to £350,000 each.
It was anticipated that there would be potential savings and other benefits:
If an Authorised Contractual Scheme (ACS) structure was used, there were further savings to withholding tax on dividends received from French and Swedish equity investments;
The scale of BCPP would potentially reduce the management costs of externally managed funds, including infrastructure related investments, to a lower cost that would make these funds more attractive investments than they were currently; and
Access to a larger pool of investment professionals than was currently available to the Fund should improve resilience and provide a greater range of investment asset types available to the Fund.
The detailed pooling proposal was presented to the Teesside Pension Fund and Investment Panel at the meeting held on 29 June 2016. The Panel agreed this version of the proposal and delegated authority to the Chair to review the final version and sign it on behalf of the Fund. The final BCPP proposal was submitted to DCLG on 15 July 2016 from further consideration. Representatives from the DCLG, HM Treasury and independent advisors met on 8 September 2016 to consider BCPPs submission.
Although no further expenditure had been committed until after the DCLG had agreed the proposal and given the go ahead for the formation of BCPP, the proposed timetable, (attached at Appendix A to the report), was very tight so preparation work had already commenced with meetings with potential suppliers of legal advice, finance/tax advice, FCA registration support and Heads of Legal from each administering authority.
The TPFIP had agreed to a revised budget of £350,000 as the share of cost appropriate for Teesside, which could only be spent once approval of the BCPP submission was received from the DCLG.
A Member Steering Group meeting had been arranged for 30 September 2016. At this meeting it had been agreed to set up a detailed project plan, create three Member sub groups which would report back to the main Member Steering Group, and begin preparation work in the following areas:
1. Operating Model - Asset servicing, ICT systems sourcing and implementation, FCA compliance, asset structuring, etc. e.g. will the pool have UK equity and how it would be measured and would the Fund be externally/internally managed etc. The Pool would need to consider whether there was adequate measures in place for home working and whether the IT systems/equipment were FCA approved.
2. People - Setting remuneration packages for senior executives, TUPE transfer of existing staff, recruitment of senior executives & staff, and securing suitable premises. The key staff would include a Chief Executive Officer, A Chief Operating Officer, a Chief Investment Officer, a Compliance Officer and a Risk Officer. Different arrangements would be in place for Front/Back office staff e.g. automating, outsourcing and the possible relocation of staff.
3. Governance and Monitoring - Co-ordinating final approvals to approve the creation of the Joint Committee, a Shelf Company and final commitment by each Partner Fund to the acquisition of an equal voting shareholding in BCPP.
The next Member Steering Group meeting was scheduled for 18 November 2016. Until the outcome of the meeting was known, work in respect of tenders and other documentation to assist in the set up was ongoing
A meeting with the Minister had been arranged for 16 November 2016 and it was hoped that this meeting would provide clarification in respect of the proposed timetable. The Chair commented that it would be useful to see the notes of the meeting held with the Minister on 16 November 2016.
It was suggested that, even if the pooling arrangements failed to go ahead, there may be some benefits in discussing the possibility of establishing collaborative arrangements in respect of future investments.
The Head of Investments and Treasury Management advised that an exercise had been carried out in respect of passive arrangements and fees were negotiated downwards across Pool Members which resulted in one of the Pool Members achieving savings of hundreds of thousands of pounds. The Board was advised that the price of alternative investments were also reducing and Fund Providers were introducing specific fees for LGPS clients.
AGREED as follows:
1. That the report be noted.
2. That Board Members be updated in respect of the outcome of the BCPP submission from the DCLG, and the project plan and progress at future meetings.