The Local Government Pension Scheme (LGPS) Report explored what savings could be achieved from establishing this single collective investment fund for the assets of all 89 LGPS funds.
Under the model each administrating authority continues to make asset allocation decisions and hold responsibility for their own liabilities, employer liaison and member administration.
Commenting on the report, Tria Investment Partners managing director Andrew Baker said there should be room for a similar ‘fiduciary management model’ within the Australian market “where large allow smaller funds to merge their investment platforms while retaining their independence, brand and board”.
It may not be as efficient as a full fund merger, but in the face of sometimes intractable board politics, it may be better than nothing," said Mr Baker.
“And of course, it can function as a first step; it does not have to be the last word,” he said.
The report estimated creating an investment platform with all $325 billion assets across the 89 LGPS funds with 90 per cent in passively managed public asset pools and the remaining 10 per cent in a series of alternative investment pools, would mean a 60 per cent reduction in costs.
These savings are mainly the result of a greater focus of passive investment, according to the research.
The report said a greater use of passive management for listed equities and bonds could save £230 million (approximately AU$415 million) each year across the LGPS without damaging investment performance and would reduce turnover costs by a further £190 million (approximately AU$340 million).
Tria Investment Partners managing director Andrew Baker said even if funds do remain committed to active management, “scale offers more bargaining power and more structuring flexibility to take out investment costs”.
“That said, the evidence suggests that super funds do in fact increase allocations to passive management as they scale up, offering further fee savings," said Mr Baker.
He said the findings of the report will likely be “controversial in Australia where most institutional investors believe it remains possible to add value for members via active management”.
He said the conclusions are "unlikely to find much support at REST, but will find sympathy with QSuper", which has already adopted such themes.
