Eighteen months ago, the £16 billion ($20 billion) London-based Local Pensions Partnership, the new asset manager for three pooled local authority schemes in the UK, sent a member of its investment team on secondment to Australia’s Future Fund.
Still working for the LPP but based in Melbourne, the employee travelled back to the UK through the course of their stay to report what they’d learnt. LPP chief executive Susan Martin says the initiative reflects the organisation’s desire to challenge itself and learn from others.
“We are new and young, and we don’t have all the answers,” Martin says.
It is one of many endeavours over the last two years that have helped define LPP’s emerging culture, which will bind together its values, mission and aspirational vision for the future as one of the UK’s eight pools to emerge from 89 local authority schemes. Martin’s challenge has been to build a culture from scratch, rather than add to the existing ones she inherited from LPP’s two founding client funds, the London Pensions Fund Authority (LPFA) and the Lancashire County Pension Fund. The idea was to avoid one pre-existing culture becoming dominant, which would’ve endangered a central part of LPP’s ethos – that all clients must be treated the same. The Berkshire Pension Fund joined the pool at the end of last year.
LPP has a keen desire to partner, leading it to glean information from Canadian and Dutch pension funds, but other characteristics have emerged as its cultural building blocks as well. LPP combines public- and private-sector values; it is a public-sector owner and understands public-sector values such as not-for-profit status, yet it is wrapped in a keenly commercial, private-sector business. The public-private dynamic creates a constant juggling that Martin believes can make excellent organisations.
“We treat all clients as partners, treat their assets like they are ours, and act like we are a pension fund ourselves,” she says. “We come from a pension fund background and we understand this better than some other fund managers.”
Delegation and trust
Delegation and trust is another central theme. Just as client funds have delegated strategy implementation and the selection and monitoring of external managers and stock selection to LPP, so LPP delegates to its own internal teams.
“Investment implementation decisions are made by the executive investment committee, rather than by LPP’s board; investment decisions are made by the people who have the experience and knowledge to make those decisions,” Martin explains.
Within those teams, robust discussion and consultation are the norm, as the structured process for sounding out new investment implementation ideas illustrates. When an employee brings a new idea to the investment committee, someone else is tasked with playing devil’s advocate and challenging every point, she says. It’s an openness to ideas and challenges that will also nurture the LPP’s keen focus on risk, which runs throughout the business.
“Whether it’s liability risk, employer risk or just fostering a risk awareness, colleagues have the confidence to speak up about risk and you don’t see this amongst many consolidators,” she says.
LPP’s emerging culture already is reflected in the 120 people it has recruited since it set up two years ago, 29 of whom sit in the investment and risk team. Employees are a mix of gender, ethnic and cognitive diversity that will allow the fund to innovate and think differently, aligned by shared values. Martin has also sought to embed an open and meritocratic culture where new ideas are valued and staff are given the time to research them.
“It is about empowering colleagues who know they are valued, listening and encouraging them to come up with new things,” she explains.
Not counting on size for opportunities
LPP has also set itself apart from the other seven entities to emerge from the UK pooling process in another important way: it believes big isn’t necessarily better.
That said, assets under management have grown. LPPI, the wholly owned investment arm of the pool is now running the alternative investment fund behind £1.2 billion ($1.5 billion) GLIL Infrastructure, an investment platform with a UK and European bias backed by five local authority schemes.
The number of clients has also grown, with the arrival of the Berkshire Pension Fund, but at only £16 billion, LPP is still noticeably smaller than other pools; for example, Border to Coast comprises 12 partner funds with £50 billion ($68 billion) in assets under management.
Even so, rather than size, Martin says her priority is to add value to her current client base; she won’t chase growth and scale for the sake of it and has turned down opportunities for LPP to expand its asset base.
“We are not here to grow the business, investment team or the assets under management for growth’s sake. All we want to do is add value for our clients and this is how we look at every project.”
With that same goal in mind, she isn’t prioritising bringing management in house and has no plans to build a big internal team. For now, internal management is confined to a £2.2 billion global equity allocation and about half of LPP’s infrastructure allocation, which LPPI invests directly, via the GLIL Infrastructure platform. Martin’s strategy is to run assets in-house where the LPP can add value but defer to fund managers with whom she has long-term partnerships for other allocations. LPP wasn’t set up only to save on fees, she notes. It’s also tasked with creating diverse portfolios, accessing new markets, hitting return targets, reducing risk and improving funded levels.
This means she downplays the importance of size in accessing investment opportunities. Of course, LPP is now able to look at different opportunities and has attracted more interest from co-investors, but Martin believes opportunities arise between like-minded partners no matter what the size. Infrastructure investment is a prime example of where opportunities to invest, either alongside the LLP or through GLIL, are open to other local authority schemes and investors, whatever their assets under management.
“It’s not about putting in big ticket, it is about a collaboration of like-minded people putting the work in to get that big ticket,” she says.
Building a new culture is challenging; culture is intangible and difficult to define and measure. But there is one way to tell if you are getting it right or wrong.
“Our clients are happy,” Martin concludes.