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UK pensions partnership targets co-investments

The new £10bn pension organisation will also look at smaller managers.

The newly formed Lancashire and London Pensions Partnership (LLPP), a combination of Lancashire and London local authority pension funds, will target co-investments and a wider range of fund managers as part of its private equity allocation.

“We will do more co-investment deals, but we are interested in the right deal,” Lancashire County Pension Fund Committee (LCPF) director George Graham told Private Equity International. “We will be looking at more direct investment and look at those funds that bring the co-investment opportunities. And we will work with investors in the fund,” he said.

Both the LCPF and the London Pensions Fund Authority Board (LPFA) have a track record of investing in alternatives, including private equity, debt and real estate, LPFA chief executive Susan Martin said. “Alternatives are important. We are coming together in this partnership because we think differently,” she said, noting that the LPFA had in-house PE expertise.

The LPFA has previously joined with the Greater Manchester Pension Fund to launch an infrastructure investment platform, she highlighted.

In terms of fund investments, the LLPP will look at smaller vehicles. “You can play it safe and go with the big boys that give a mediocre return or you can search out the smaller niche funds,” Graham said.

LLPP will not invest in fund-of-funds. “What we have we’ll run off and we won’t replace them,” he said.

The LLPP is a fully-fledged pension service organisation with a shared administration, a pool of £10 billion ($15.6 billion; €14 billion) of assets, and jointly managed liabilities, according to a statement. Its aim is to reduce combined fees and costs by £32 million within five years, increase access to a rising number and variety of direct investments, and improve liability management.

The scale of the new entity’s private-equity activities was likely to be the same as the combined funds’ allocations, and although they are pooling assets and resources, strategic asset allocation and implementation will remain with the separate pension funds, Graham said.

The Lancashire County Pension Fund manages £5.7 billion on behalf of 150,000 scheme members. Over the past five years, the pension fund has revised its strategy away from a largely passively-managed public equity portfolio and is reviewing its direct infrastructure, private equity and real estate investments, according to reports. Capital Dynamics assists the fund in managing its direct investments, reports said.

The London Pensions Fund Authority administers £4.8bn on behalf of 250,000 people. About eight percent of its portfolio is allocated to PE, with a target of 12 percent, according to PEI’s Research & Analytics division. Its recent commitments include to Hermes GPE PEC II Co-investment Fund, launched in 2014, and Bridges Community Ventures Fund III, launched in 2011.