Aoifinn Devitt: The next podcast is with a Future 50 Faces podcast guest, Richard Tomlinson, brought to you as part of our special bonus series produced in connection with Always a Pensions Angle by DG Publishing. In this podcast, he speaks about how LPPI is going from 3 clients to 9, the challenges that that represents, but also the great opportunity to enjoy from scale and from rolling out their advisory function.
Richard Tomlinson: Hello, ladies and gentlemen, and welcome to another edition of Always a Pensioner’s Angle, the LGPS interview special. I am Thomas Parker. I’m joined by Nick Gray.
Speaker C: Hello, hello.
Richard Tomlinson: Nick, are you looking forward to today’s interview?
Speaker D: I am indeed. Another pool chief who I’ve been following for quite a while.
Richard Tomlinson: Yes, indeed it is. Drum roll, please. Richard Tomlinson, who is the Chief Investment Officer of LPPI. Of course, like all of these interviews, the interview was conducted by Aoifinn Devitt, host of the 50 Faces podcast at last month’s Lapsive February event. And she started off by asking Richard how the pool will evolve when it grows from 329 funds?
Speaker C: So the first thing I’d say is, I’m sure like I’d say probably everyone in the LGPS, we’ve been quite busy for the last 12 months and I’m expecting to be very busy for the next 12, 24 months or so, at least very, very busy. I think from, if I was to be quite candid or transparent, that there was this vision, this view that LPPI was somewhat inflexible in terms of our more concentrated mix of products and options we offered partner funds. But certainly the way we’ve reflected on that and talked to the new, our new partner funds and our current partner funds as well is that we We built a product offer to serve the partner funds we had early on, and now that’s evolving to meet the needs of the broader group. So we’re going from 3 to 9. And I think what I’d say is we are evolving that mix and we’re evolving in line with what the Fit for the Future mandate or the bill says we all need to do. So it’s a time of change. And whilst we have a good number of the elements in place to be compliant with the bill, still doesn’t mean we don’t have to change things. We have to think about how we operate to ensure that we can continue to meet the needs of our shareholders and our partner funds and deliver the investment portfolios they need in line with their requirements.
Aoifinn Devitt: Um, so it’s sort of the key attributes of the government’s original policies are around scale and cost savings. I wonder if you could just comment on that, because I think one of the challenges that some of the larger administering authorities face is they were already enjoying the benefits of scale. Is there a sense that scale has diminishing returns, um, that there’s a limit to the scale? And in a way, the more layers you have to add now, in a way that the complicated it can get. If you could comment on that and also cost savings. Again, do cost savings have a natural, I suppose, limit?
Speaker C: I think what I’d say is that they’re, on the first point, on terms of returns to scale, it’s nonlinear, whatever words you want to use there. And I think you have to break it down to different activities and assets that you look after. So some elements, there are significant cost savings through scale, and other areas, scale isn’t your friend. It makes some things more difficult, and that’s going to vary. So I think that it varies by the specific shape and form of the business that you run. But if you step back up to that total principles point, what I’d say is that scale gives you more strategic options, but you also need to be able to execute them and do them well. But it also means you need to think subtly differently about how you implement the portfolios. And to the point that you are right, I’d agree with you that a number of the very large LGPS funds are already enjoying significant scale benefits. So some parts of activity, there may not be much change for them, but there will probably be some where the additional scale will help. And The place I’d focus on, pick things where the scale really matters. So real assets, private, or real assets platforms where you need real scale to be able to drive down costs significantly. And then you can create national platforms similar to what we’ve been working on recently with Northern Pool in terms of single-family housing. It may be like GLA, where no one’s big enough to do that on their own. So you find that collaboration. So it comes down to collaborating to create scale and synergy where it really matters, but also being really honest about where there are diminishing returns to scale, and then making sure that you implement efficiently. And then in terms of cost savings, I quite often talk about the make versus buy conundrum. There is no one single answer. And I think you have to look quite carefully on a line-by-line basis. And it makes me sound a bit old, but it’s almost like a McKinsey, Michael Portery type analysis to say, this makes sense to do in-house, this doesn’t. And you look at the specifics of that element, but the fundamental point you need to get back to is, does it serve the stakeholders? Does it serve partner funds. And if we do something in-house, does it drive cost savings which serve the stakeholders or not? And then hopefully that all comes together and you build an efficient business that delivers cost savings and is optimized to serve the partner funds. So if it doesn’t serve the partner funds, why are you doing it?
Aoifinn Devitt: Well, I’ll definitely talk about the future role that pools will play at the end of the discussion, but I want to go back into the weeds for a second, in particular around, um, what has been discussed about the addition of the advisory role. I know, as we’ve discussed, uh, LPPI has been an early mover in that respect. They’ve been providing advice at least not within the same, I suppose, “mandation,” as will come for some time. Could you tell us about how you see, you’ve envisaged that role evolving, the advisory role? And in particular, given you now have 9 clients, what that will look like in terms of perhaps the number of advisors will be allocated per committee clients, per advisor? What kind of an ownership function do you have to develop?
Speaker C: Well, that’s a great question, Aisling, and diving into the detail, it’s something interesting that I’ve been deep engaged with in the last week or so, how we scale that up. So certainly the model we’re working on is we’ve— our approach has been to come at every client portfolio on an individual basis. So that means we look at every single client portfolio and run them as a, you know, in a discretionary portfolio management approach or advisor approach, whatever words you want to use, but it’s single rifle shot focus on each portfolio. To, to grow, um, from 3 to 9, we are then creating these roles of client portfolio managers. So every partner funds will have a dedicated named individual who is responsible for implementing their portfolio. With 9 partner funds, we’re working on the idea, let’s say, that you have essentially 4 and 5, 2 senior individuals. So the plan is we’re looking to— we’re close to concluding to hire 2 reasonably very senior people to be the point person for those client portfolios. Because previously with 3 partner funds, as you know, I’m present at many, almost every client partner fund meeting. I can’t do that with 9, simply diaries don’t work, so where they’re evolving into that, and those individuals will essentially manage that partner fund relationship. And to deliver the advice, it’s their role to deeply understand each partner fund’s specific requirements, and then work with what you may call our investment advisory group or strategy group to deliver that advice. So it’s a partnership across our client group, client portfolio management group, and our strategy group to deliver the advice. But it is always bespoke to the partner fund. There is no generic piece. And how that scales going forward, I think what I’d say is that fundamentally, the bare bones, The process will be the same, the way we approach it the same, maybe subtly different people doing some parts of the process, but it’s fundamentally the same with every 3 years of the triennial evaluation, a deep dive, deep strategic review, then annual health check, and agreed in advance with the partner fund to their requirements.
Aoifinn Devitt: And it’s been recently announced that you’ll be opening an office in Bristol, I think picking up on the Brunel coverage of some of those new partner funds. How do you, how will you ensure that, I suppose, the same culture LPPi has, a strong culture out of your London hub, How will you ensure that that culture is also inculcated and in place in Bristol? How will you use that regional, those regional representatives as part of the whole?
Speaker C: That’s a very pertinent question. And if I could have written the questions myself, I would’ve put that one in there. So, it’s one I’m very happy to talk about. From a personal perspective, I’ve always been a big fan of, I was very keen for us to have that Bristol presence, or call it that, in that region of the world, because I think it’s very easy to say, We believe certain things, but what matters is what you execute and what you deliver on your actions. It’s your revealed preferences. And for me, there’s multiple reasons for having that hub. One is, I think you can do a better job of engaging and servicing your partner funds or clients, whatever terminology you want to use. I think if you’re on the ground, you’re close to them and you have more touchpoint, I think it’s a strong signal to our commitment to them. And I think that is critical. And then thirdly, there is the element of, one of the key pillars of Fit for the Future is local investing. So we’re already engaging with regional authorities and similar in the region. And my view is if we have a hub there, that is going to enable us to meet partner fund requirements better for that local piece, having that presence. And actually the critical part on the culture, something I feel is really important is to have senior people based in that office. And for some London-based people, myself and others, to actually spend time in that office and be there. And TBC what that really, the specifics. But it’s something that I think that is how you develop the culture. And for the people in that office to spend time in the London office helpfully, You know, it’s not a hugely long train ride between the two.
Aoifinn Devitt: Well, speaking of culture, I think another aspect that comes out strongly from the regulations is this culture of challenge that the government wishes to instill in the administering authorities, whether through the independent person, the senior responsible officer, and also just challenging the advice of the pool, at least being able to implement it. How do you see that you will get this balance right between— other representatives have spoken about the ability be look at their self-efficacy. And perhaps, um, you mentioned buy versus build, um, assess whether something that’s built within LPPi is measuring up to the same scrutiny that, say, you would hold an external manager to. How will you ensure that that is rigorous?
Speaker C: Yeah, and that’s, that’s a really— let’s just say getting to the nub of the issue. I think it might be one way of framing it. I think there’s, there’s different ways to approach that, and the different pools currently have different I say corporate structures, but they’re structured in slightly different ways in terms of boards versus joint committees and other things. I certainly think you need to have individuals within the structure of the operation of the business, whether that’s a board or similar, who have the skills and ability to really challenge. And that means appropriately qualified people who ask difficult questions, and the pool is well governed. But let’s just take that as a given. From the fund side of things, I think funds need— I’m a firm believer in highly qualified, let’s say experienced independent advice to the funds in the sense of providing that challenge to the pool. The pool should be held to account. Certainly on the panel earlier, it was debated around the fiduciary oversight model. And I firmly agree with the goals of what a fiduciary oversight model is trying to achieve. The only challenge I’ve seen from our experience is if it’s approached in the way that the private sector does that, the data requirements are meaningful. If you’re not necessarily geared up to provide that level of granularity of data, it can be very significant amount of work, which the pool pays for. Which comes out of partner fund, the partner funds pay for that ultimately. So there’s got to be a balancing act, but the idea that I think everyone, certainly from the LPP perspective, the idea of funds, partner funds being empowered with the ability and the knowledge and the support to ask really challenging questions, holding pools to account, that is very important from our perspective.
Aoifinn Devitt: Another key principle is compromise. I think you’re probably acutely aware of that, given going from 3 to 9 and some of the discussions And in particular, I’d like to focus on the buckets that are, for some, in some quarters, controversial in terms of them being perhaps too broad in terms of the asset class buckets. There are 9 buckets currently that each administering authority will, will have to use for their asset allocation. And LPPI has always had a small number of broad-based buckets as their approach. It’s how you’ve always operated in terms of implementation.
Speaker C: How do you see that evolving, if at Well, so we see it evolving quite significantly, actually, from our point of view. So I think there was this view, fairly or unfairly, who knows, that we were quite restrictive in what we allowed partners to do. And I think that was, if I’m in hindsight, maybe there was some truth to that in the sense that we had a limited number of funds. We had one equity fund for implementation. That’s evolving as we go forward too. We’re evolving our set of products, not to 20 or 30, but certainly in the teens of the different elements of it. But I think the difference that we’ve had is that we don’t view it as a series of pots. We look at a portfolio for a partner fund. We view it as a discretionary portfolio manager, and then we think about how to optimally implement that portfolio. So that then puts a responsibility on us to deliver that mandate, as others may do with that sort of approach. So it’s meaning that we’re then thinking very deeply about when we look at the framing partner fund gives us, their ISS and their SAA, how do we deliver that? And there are, I think it’s a lot more subtle than simply the buckets, if that makes sense. So we are then trying to design a back end to deliver the portfolio that the partner fund needs. Is it aligned with their strategy? Is it aligned with the Fit for the Future and the bill and other regulation? Because nobody is— in any business, you don’t want unhappy clients or partner funds. You want them to be happy with what you’re delivering. So we expect to have more degrees of freedom to implement. We’re still expecting to work in partnership with our partner funds. We’ll have more vehicles to invest in. But what remains the same is that fundamental focus on Every partner fund’s portfolio is specific to them, and we find ways to execute for them. And I think then it’s being smart with how you— you’ve got to remain efficient and not destroy the benefits of scale and pooling, but also have enough flexibility where you can to deliver that. And that means, yeah, maybe some tweaks, greater range of equities, certainly the local portfolios, and then a few things in between.
Aoifinn Devitt: What I’m hearing sounds a little bit like a piece of jargon that Toby Nagle described as the fuzzy but buzzy concept of total portfolio approach. And I think that’s sort of akin to thinking like an owner, which I will presume with the advice component, these client relationship managers, you are going to put yourself in the shoes of an owner in terms of not only owning their obligation to reach a certain return, but also their liabilities and that profile. In terms of that cultural shift, because I think originally many of the pools more focused on the asset side of the equation, not owning the liability side of the cash flow responsibility, how are you managing that cultural shift?
Speaker C: Yeah, and that’s a great question, Ethan. So I think that we’ve always, when I look at my role as a CIO, I’ve been CIO for 5, 6 years, I look at the client’s portfolio and their goals and what they’re trying to achieve, and I view it as our role to find a way to align with that and do everything we can to help to partner and be the person that supports the partner fund in meeting those goals. So, What we certainly don’t do is just view it as a series of asset buckets to blend together. It’s thinking about that. So certainly within the way we’re framing our future partner fund relationships, there will be a deep conversation, as came up on the panel earlier, in terms of what are the goals in terms of returns, what are the constraints in terms of risk limits, how much risk do you want to run, how do we take your SAA and build you a portfolio that meets your long-term goal of paying pensions as they fall due over the long term efficiently and affordably. There is an element of a total portfolio approach mindset. I would say that we’re not full tilt skewing towards a full total portfolio approach because that implies more delegation than I think our partner funds would wish. The bill does provide some flexibility, but I don’t see us going that direction. I take us as we have an SAA, but we are very focused on, as you said, client portfolio managers thinking holistically, and it’s their job to think, put themselves in the shoes of that partner fund, take the mandate and feel what is it that we need to deliver. And that doesn’t just mean performance, it means risk profile. It means RI, it means liquidity, cash flow, every— the whole totality of that, and being accountable to the partner fund for the execution of that on their behalf.
Aoifinn Devitt: And now it’s the crystal ball question in terms of where the pools have— what they look like in 5 years’ time when all of this, I suppose, this burdensome structural restructuring is in the past. What role do you think the pools will play? And I’m thinking of some of your global peers who are thought leaders, really kind of forging the, the future of investment on their national stages. Um, seems that LVPI, with some of the cross-pool collaboration, is already doing some of that. How do you see your role in 5 years’ time?
Speaker C: So I think the one thing I’d say is I suspect there’ll be more— the pools will look more similar than they do today. Um, different people are in different pools from different places, but we’re being driven towards a similar place. I would hope that the— what isn’t lost is the fact that we exist to serve our partner funds, um, and it’s ultimately— we are there as an instrument of their implementation, or whatever words you to use around that. So we’re quite mindful about, you know, we’re not the star of the show, it’s the partner funds. We’re there to implement and support them and guide. Um, in terms of where we might end up in 5 years, um, and on a global— on that versus global peers, I think our job is to understand the mandate and deliver solutions. And if part of that does need, need thought leadership and engaging that on a broader sense, we’re very happy to do that. But ultimately we’ll be guided by where our partner funds want us to take the pool on their behalf. But yeah, surely, I’m sure the pools will be bigger, more systemically important, but fundamentally it’s about serving the partner funds and delivering their portfolios to core mission, paying pensions as they fall due affordably and efficiently.
Aoifinn Devitt: Well, thank you so much, Richard. Having watched LPPI from inception, it is fantastic to see that the strides that have been made, your focus on transparency, and above all, your focus on listening to the now growing group of partner funds that you are contending with. You clearly have a long road ahead, But I couldn’t think of a more capable set of hands to be steering that ship. So thank you for sharing your insights with us.
Speaker C: Thank you, Ethan.
Richard Tomlinson: Thank you, Ethan. And thank you, of course, Richard. Nick, what were your sort of big takeaways from that interview?
Speaker D: Yeah, I thought it was interesting. LPPI is one, the pool that’s kind of taken a slightly different path to a lot of the others because of the way it launched. You know, having the liabilities of merging funds a little bit more than maybe others have. —so it’ll be interesting how they are going to kind of manage that going forward. I thought that was interesting. And very excited as someone who grew up in Bristol to have them have a Bristol presence there, which makes a lot of sense, obviously, logistically from them. Absolutely. Absolutely.
Speaker C: Well, thank you very much, Nick, for joining me. Good to meet you.
Richard Tomlinson: The Always a Pensioner’s Angle LGPS interview special was hosted in collaboration with the 50 Faces podcast. Interviews conducted by Ethan of it. With the music being Drive Me Now by Mood Mode from Storyblocks.com.
Aoifinn Devitt: The next podcast is with a Future 50 Faces podcast guest, Richard Tomlinson, brought to you as part of our special bonus series produced in connection with Always a Pensions Angle by DG Publishing. In this podcast, he speaks about how LPPI is going from 3 clients to 9, the challenges that that represents, but also the great opportunity to enjoy from scale and from rolling out their advisory function.
Richard Tomlinson: Hello, ladies and gentlemen, and welcome to another edition of Always a Pensioner’s Angle, the LGPS interview special. I am Thomas Parker. I’m joined by Nick Gray.
Speaker C: Hello, hello.
Richard Tomlinson: Nick, are you looking forward to today’s interview?
Speaker D: I am indeed. Another pool chief who I’ve been following for quite a while.
Richard Tomlinson: Yes, indeed it is. Drum roll, please. Richard Tomlinson, who is the Chief Investment Officer of LPPI. Of course, like all of these interviews, the interview was conducted by Aoifinn Devitt, host of the 50 Faces podcast at last month’s Lapsive February event. And she started off by asking Richard how the pool will evolve when it grows from 329 funds?
Speaker C: So the first thing I’d say is, I’m sure like I’d say probably everyone in the LGPS, we’ve been quite busy for the last 12 months and I’m expecting to be very busy for the next 12, 24 months or so, at least very, very busy. I think from, if I was to be quite candid or transparent, that there was this vision, this view that LPPI was somewhat inflexible in terms of our more concentrated mix of products and options we offered partner funds. But certainly the way we’ve reflected on that and talked to the new, our new partner funds and our current partner funds as well is that we We built a product offer to serve the partner funds we had early on, and now that’s evolving to meet the needs of the broader group. So we’re going from 3 to 9. And I think what I’d say is we are evolving that mix and we’re evolving in line with what the Fit for the Future mandate or the bill says we all need to do. So it’s a time of change. And whilst we have a good number of the elements in place to be compliant with the bill, still doesn’t mean we don’t have to change things. We have to think about how we operate to ensure that we can continue to meet the needs of our shareholders and our partner funds and deliver the investment portfolios they need in line with their requirements.
Aoifinn Devitt: Um, so it’s sort of the key attributes of the government’s original policies are around scale and cost savings. I wonder if you could just comment on that, because I think one of the challenges that some of the larger administering authorities face is they were already enjoying the benefits of scale. Is there a sense that scale has diminishing returns, um, that there’s a limit to the scale? And in a way, the more layers you have to add now, in a way that the complicated it can get. If you could comment on that and also cost savings. Again, do cost savings have a natural, I suppose, limit?
Speaker C: I think what I’d say is that they’re, on the first point, on terms of returns to scale, it’s nonlinear, whatever words you want to use there. And I think you have to break it down to different activities and assets that you look after. So some elements, there are significant cost savings through scale, and other areas, scale isn’t your friend. It makes some things more difficult, and that’s going to vary. So I think that it varies by the specific shape and form of the business that you run. But if you step back up to that total principles point, what I’d say is that scale gives you more strategic options, but you also need to be able to execute them and do them well. But it also means you need to think subtly differently about how you implement the portfolios. And to the point that you are right, I’d agree with you that a number of the very large LGPS funds are already enjoying significant scale benefits. So some parts of activity, there may not be much change for them, but there will probably be some where the additional scale will help. And The place I’d focus on, pick things where the scale really matters. So real assets, private, or real assets platforms where you need real scale to be able to drive down costs significantly. And then you can create national platforms similar to what we’ve been working on recently with Northern Pool in terms of single-family housing. It may be like GLA, where no one’s big enough to do that on their own. So you find that collaboration. So it comes down to collaborating to create scale and synergy where it really matters, but also being really honest about where there are diminishing returns to scale, and then making sure that you implement efficiently. And then in terms of cost savings, I quite often talk about the make versus buy conundrum. There is no one single answer. And I think you have to look quite carefully on a line-by-line basis. And it makes me sound a bit old, but it’s almost like a McKinsey, Michael Portery type analysis to say, this makes sense to do in-house, this doesn’t. And you look at the specifics of that element, but the fundamental point you need to get back to is, does it serve the stakeholders? Does it serve partner funds. And if we do something in-house, does it drive cost savings which serve the stakeholders or not? And then hopefully that all comes together and you build an efficient business that delivers cost savings and is optimized to serve the partner funds. So if it doesn’t serve the partner funds, why are you doing it?
Aoifinn Devitt: Well, I’ll definitely talk about the future role that pools will play at the end of the discussion, but I want to go back into the weeds for a second, in particular around, um, what has been discussed about the addition of the advisory role. I know, as we’ve discussed, uh, LPPI has been an early mover in that respect. They’ve been providing advice at least not within the same, I suppose, “mandation,” as will come for some time. Could you tell us about how you see, you’ve envisaged that role evolving, the advisory role? And in particular, given you now have 9 clients, what that will look like in terms of perhaps the number of advisors will be allocated per committee clients, per advisor? What kind of an ownership function do you have to develop?
Speaker C: Well, that’s a great question, Aisling, and diving into the detail, it’s something interesting that I’ve been deep engaged with in the last week or so, how we scale that up. So certainly the model we’re working on is we’ve— our approach has been to come at every client portfolio on an individual basis. So that means we look at every single client portfolio and run them as a, you know, in a discretionary portfolio management approach or advisor approach, whatever words you want to use, but it’s single rifle shot focus on each portfolio. To, to grow, um, from 3 to 9, we are then creating these roles of client portfolio managers. So every partner funds will have a dedicated named individual who is responsible for implementing their portfolio. With 9 partner funds, we’re working on the idea, let’s say, that you have essentially 4 and 5, 2 senior individuals. So the plan is we’re looking to— we’re close to concluding to hire 2 reasonably very senior people to be the point person for those client portfolios. Because previously with 3 partner funds, as you know, I’m present at many, almost every client partner fund meeting. I can’t do that with 9, simply diaries don’t work, so where they’re evolving into that, and those individuals will essentially manage that partner fund relationship. And to deliver the advice, it’s their role to deeply understand each partner fund’s specific requirements, and then work with what you may call our investment advisory group or strategy group to deliver that advice. So it’s a partnership across our client group, client portfolio management group, and our strategy group to deliver the advice. But it is always bespoke to the partner fund. There is no generic piece. And how that scales going forward, I think what I’d say is that fundamentally, the bare bones, The process will be the same, the way we approach it the same, maybe subtly different people doing some parts of the process, but it’s fundamentally the same with every 3 years of the triennial evaluation, a deep dive, deep strategic review, then annual health check, and agreed in advance with the partner fund to their requirements.
Aoifinn Devitt: And it’s been recently announced that you’ll be opening an office in Bristol, I think picking up on the Brunel coverage of some of those new partner funds. How do you, how will you ensure that, I suppose, the same culture LPPi has, a strong culture out of your London hub, How will you ensure that that culture is also inculcated and in place in Bristol? How will you use that regional, those regional representatives as part of the whole?
Speaker C: That’s a very pertinent question. And if I could have written the questions myself, I would’ve put that one in there. So, it’s one I’m very happy to talk about. From a personal perspective, I’ve always been a big fan of, I was very keen for us to have that Bristol presence, or call it that, in that region of the world, because I think it’s very easy to say, We believe certain things, but what matters is what you execute and what you deliver on your actions. It’s your revealed preferences. And for me, there’s multiple reasons for having that hub. One is, I think you can do a better job of engaging and servicing your partner funds or clients, whatever terminology you want to use. I think if you’re on the ground, you’re close to them and you have more touchpoint, I think it’s a strong signal to our commitment to them. And I think that is critical. And then thirdly, there is the element of, one of the key pillars of Fit for the Future is local investing. So we’re already engaging with regional authorities and similar in the region. And my view is if we have a hub there, that is going to enable us to meet partner fund requirements better for that local piece, having that presence. And actually the critical part on the culture, something I feel is really important is to have senior people based in that office. And for some London-based people, myself and others, to actually spend time in that office and be there. And TBC what that really, the specifics. But it’s something that I think that is how you develop the culture. And for the people in that office to spend time in the London office helpfully, You know, it’s not a hugely long train ride between the two.
Aoifinn Devitt: Well, speaking of culture, I think another aspect that comes out strongly from the regulations is this culture of challenge that the government wishes to instill in the administering authorities, whether through the independent person, the senior responsible officer, and also just challenging the advice of the pool, at least being able to implement it. How do you see that you will get this balance right between— other representatives have spoken about the ability be look at their self-efficacy. And perhaps, um, you mentioned buy versus build, um, assess whether something that’s built within LPPi is measuring up to the same scrutiny that, say, you would hold an external manager to. How will you ensure that that is rigorous?
Speaker C: Yeah, and that’s, that’s a really— let’s just say getting to the nub of the issue. I think it might be one way of framing it. I think there’s, there’s different ways to approach that, and the different pools currently have different I say corporate structures, but they’re structured in slightly different ways in terms of boards versus joint committees and other things. I certainly think you need to have individuals within the structure of the operation of the business, whether that’s a board or similar, who have the skills and ability to really challenge. And that means appropriately qualified people who ask difficult questions, and the pool is well governed. But let’s just take that as a given. From the fund side of things, I think funds need— I’m a firm believer in highly qualified, let’s say experienced independent advice to the funds in the sense of providing that challenge to the pool. The pool should be held to account. Certainly on the panel earlier, it was debated around the fiduciary oversight model. And I firmly agree with the goals of what a fiduciary oversight model is trying to achieve. The only challenge I’ve seen from our experience is if it’s approached in the way that the private sector does that, the data requirements are meaningful. If you’re not necessarily geared up to provide that level of granularity of data, it can be very significant amount of work, which the pool pays for. Which comes out of partner fund, the partner funds pay for that ultimately. So there’s got to be a balancing act, but the idea that I think everyone, certainly from the LPP perspective, the idea of funds, partner funds being empowered with the ability and the knowledge and the support to ask really challenging questions, holding pools to account, that is very important from our perspective.
Aoifinn Devitt: Another key principle is compromise. I think you’re probably acutely aware of that, given going from 3 to 9 and some of the discussions And in particular, I’d like to focus on the buckets that are, for some, in some quarters, controversial in terms of them being perhaps too broad in terms of the asset class buckets. There are 9 buckets currently that each administering authority will, will have to use for their asset allocation. And LPPI has always had a small number of broad-based buckets as their approach. It’s how you’ve always operated in terms of implementation.
Speaker C: How do you see that evolving, if at Well, so we see it evolving quite significantly, actually, from our point of view. So I think there was this view, fairly or unfairly, who knows, that we were quite restrictive in what we allowed partners to do. And I think that was, if I’m in hindsight, maybe there was some truth to that in the sense that we had a limited number of funds. We had one equity fund for implementation. That’s evolving as we go forward too. We’re evolving our set of products, not to 20 or 30, but certainly in the teens of the different elements of it. But I think the difference that we’ve had is that we don’t view it as a series of pots. We look at a portfolio for a partner fund. We view it as a discretionary portfolio manager, and then we think about how to optimally implement that portfolio. So that then puts a responsibility on us to deliver that mandate, as others may do with that sort of approach. So it’s meaning that we’re then thinking very deeply about when we look at the framing partner fund gives us, their ISS and their SAA, how do we deliver that? And there are, I think it’s a lot more subtle than simply the buckets, if that makes sense. So we are then trying to design a back end to deliver the portfolio that the partner fund needs. Is it aligned with their strategy? Is it aligned with the Fit for the Future and the bill and other regulation? Because nobody is— in any business, you don’t want unhappy clients or partner funds. You want them to be happy with what you’re delivering. So we expect to have more degrees of freedom to implement. We’re still expecting to work in partnership with our partner funds. We’ll have more vehicles to invest in. But what remains the same is that fundamental focus on Every partner fund’s portfolio is specific to them, and we find ways to execute for them. And I think then it’s being smart with how you— you’ve got to remain efficient and not destroy the benefits of scale and pooling, but also have enough flexibility where you can to deliver that. And that means, yeah, maybe some tweaks, greater range of equities, certainly the local portfolios, and then a few things in between.
Aoifinn Devitt: What I’m hearing sounds a little bit like a piece of jargon that Toby Nagle described as the fuzzy but buzzy concept of total portfolio approach. And I think that’s sort of akin to thinking like an owner, which I will presume with the advice component, these client relationship managers, you are going to put yourself in the shoes of an owner in terms of not only owning their obligation to reach a certain return, but also their liabilities and that profile. In terms of that cultural shift, because I think originally many of the pools more focused on the asset side of the equation, not owning the liability side of the cash flow responsibility, how are you managing that cultural shift?
Speaker C: Yeah, and that’s a great question, Ethan. So I think that we’ve always, when I look at my role as a CIO, I’ve been CIO for 5, 6 years, I look at the client’s portfolio and their goals and what they’re trying to achieve, and I view it as our role to find a way to align with that and do everything we can to help to partner and be the person that supports the partner fund in meeting those goals. So, What we certainly don’t do is just view it as a series of asset buckets to blend together. It’s thinking about that. So certainly within the way we’re framing our future partner fund relationships, there will be a deep conversation, as came up on the panel earlier, in terms of what are the goals in terms of returns, what are the constraints in terms of risk limits, how much risk do you want to run, how do we take your SAA and build you a portfolio that meets your long-term goal of paying pensions as they fall due over the long term efficiently and affordably. There is an element of a total portfolio approach mindset. I would say that we’re not full tilt skewing towards a full total portfolio approach because that implies more delegation than I think our partner funds would wish. The bill does provide some flexibility, but I don’t see us going that direction. I take us as we have an SAA, but we are very focused on, as you said, client portfolio managers thinking holistically, and it’s their job to think, put themselves in the shoes of that partner fund, take the mandate and feel what is it that we need to deliver. And that doesn’t just mean performance, it means risk profile. It means RI, it means liquidity, cash flow, every— the whole totality of that, and being accountable to the partner fund for the execution of that on their behalf.
Aoifinn Devitt: And now it’s the crystal ball question in terms of where the pools have— what they look like in 5 years’ time when all of this, I suppose, this burdensome structural restructuring is in the past. What role do you think the pools will play? And I’m thinking of some of your global peers who are thought leaders, really kind of forging the, the future of investment on their national stages. Um, seems that LVPI, with some of the cross-pool collaboration, is already doing some of that. How do you see your role in 5 years’ time?
Speaker C: So I think the one thing I’d say is I suspect there’ll be more— the pools will look more similar than they do today. Um, different people are in different pools from different places, but we’re being driven towards a similar place. I would hope that the— what isn’t lost is the fact that we exist to serve our partner funds, um, and it’s ultimately— we are there as an instrument of their implementation, or whatever words you to use around that. So we’re quite mindful about, you know, we’re not the star of the show, it’s the partner funds. We’re there to implement and support them and guide. Um, in terms of where we might end up in 5 years, um, and on a global— on that versus global peers, I think our job is to understand the mandate and deliver solutions. And if part of that does need, need thought leadership and engaging that on a broader sense, we’re very happy to do that. But ultimately we’ll be guided by where our partner funds want us to take the pool on their behalf. But yeah, surely, I’m sure the pools will be bigger, more systemically important, but fundamentally it’s about serving the partner funds and delivering their portfolios to core mission, paying pensions as they fall due affordably and efficiently.
Aoifinn Devitt: Well, thank you so much, Richard. Having watched LPPI from inception, it is fantastic to see that the strides that have been made, your focus on transparency, and above all, your focus on listening to the now growing group of partner funds that you are contending with. You clearly have a long road ahead, But I couldn’t think of a more capable set of hands to be steering that ship. So thank you for sharing your insights with us.
Speaker C: Thank you, Ethan.
Richard Tomlinson: Thank you, Ethan. And thank you, of course, Richard. Nick, what were your sort of big takeaways from that interview?
Speaker D: Yeah, I thought it was interesting. LPPI is one, the pool that’s kind of taken a slightly different path to a lot of the others because of the way it launched. You know, having the liabilities of merging funds a little bit more than maybe others have. —so it’ll be interesting how they are going to kind of manage that going forward. I thought that was interesting. And very excited as someone who grew up in Bristol to have them have a Bristol presence there, which makes a lot of sense, obviously, logistically from them. Absolutely. Absolutely.
Speaker C: Well, thank you very much, Nick, for joining me. Good to meet you.
Richard Tomlinson: The Always a Pensioner’s Angle LGPS interview special was hosted in collaboration with the 50 Faces podcast. Interviews conducted by Ethan of it. With the music being Drive Me Now by Mood Mode from Storyblocks.com.
