Border to Coast Pensions Partnership Ltd Manager Day June 2018
Purpose of today 1. To update you on progress at Border to Coast 2. To outline the timing and details of the first Sub- Fund launches 3. To set out our approach to manager selection and what you should expect 4. To answer your questions 2
Border to Coast Pensions Partnership 12 Likeminded Local Government Pension Funds c. £50bn Assets Under Management Internal & External Management 3
Border to Coast: the story so far Phase 2: Govt Phase 3: Phase 1: approval, funds’ transition to establishing pool commitment and permanent team and guiding building blocks and building principles established by Border to Coast project team Jan 2015 – July 2016 July 2016 – Dec 2017 Dec 2017 Guiding principles 1. Meet Government aims (governance, RI, VFM and infrastructure) 2. One Fund, One Vote 3. Funds retain governance role and ownership of asset allocation 4. Generate improved net of fees risk adjusted performance 5. Internal management capability 6. Improved resilience and capacity over existing structures 7. Shared team in one location (Leeds) 4
Border to Coast: Why Are We Here? Making a difference to investment outcomes for Local Government Pension Funds through pooling to create a stronger voice; working in partnership to deliver cost effective, innovative, and responsible investment now and into the future; thereby enabling great, sustainable performance . 5
Border to Coast: What Do We Want To Be? • a collegiate organisation: working together in an open and trusting environment with shared vision and goals Collegiate to deliver long-term , strong and sustainable outcomes for customers; • a sustainable organisation: investing in our colleagues by facilitating work-life balance ; by encouraging personal and Customer professional development ; and owned, supporting a creative , flexible and open Customer to change culture that is equipped to focussed evolve new capabilities as customer Transparent Sustainable needs change; • a transparent organisation: maintaining customer and public trust in Border to Coast’s integrity to enable us to deliver our objectives. 6
Border to Coast: progress in 2018 Milestones achieved • FCA authorisation (FRN 800511) and ACS approval (PRN 807336 – QIS suitable for professional customers only ) in place • Board and senior management team appointed • New office established – Toronto Square, Leeds • TUPE integration of internal teams under way • Transition and Manager Selection Advisers appointed Next steps in 2018 • First internally managed Funds to launch in July • First externally managed Funds to launch in October • Private markets structure planned for Q4 2018 7
Border to Coast: Board Chris Hitchen Enid Rowlands Tanya Castell Chairman Non-Executive Director Non-Executive Director Rachel Elwell Fiona Miller Chief Executive Chief Operating Officer 8
Border to Coast Pensions Partnership Ltd Investment Team John Harrison
Creating our new Investment Team Build on what was there already • Experienced investment professionals • Broad range of asset classes • Strong track record for internal capabilities • Consistent approach and long term perspective Future opportunities • Larger team with greater research capability • Additional focus on external manager capabilities • Enhanced risk disciplines and awareness 10
Investment Team structure – end 2018 CIO Head of Equities and Head of Strategy and Head of External Head of Research Alternatives Fixed Income Management Portfolio Managers Portfolio Portfolio Head of RI Portfolio Risk Equities (7) Managers Managers Economist Manager Alternatives (4) (2) (4) Research Managers (2) Assistant Portfolio Managers (4) Research Analysts (4) 11
INDICATIVE Potential Development of Sub-Funds* = Potential external manager mandates * Subject to Partner Fund requirements 12
Border to Coast Pensions Partnership Ltd Externally Managed Funds Graham Long
Existing Active UK Equity mandates End Mar Mandates Target vs Size • Seven mandates - all use FTSE 2017 index All Share benchmark Cumbria One +1% pa £241m • Five mandates with net of North One +3% pa £304m fees performance targets Yorkshire between 1.75% and 2.25% pa Surrey Two +2% pa £684m +2.5% pa – closely aligned with Border Tyne & Two +2.5% pa £632m to Coast Sub-Fund Wear +4% pa Warwick- One +2% pa £283m • Two outliers – one lower risk shire and one higher risk Total £2.1bn 14
UK Listed Equity Alpha Fund Starting AUM: £0.8bn – £1.2bn (est) subject to Partner Fund asset allocation decisions Manager numbers: 3 Benchmark: FTSE All Share Index Performance Target: +2% pa rolling 3 years (net of manager fees) Risk: 2% to 5% tracking error 15
Existing Active Global Equity mandates • 18 mandates; 17 managers • Broad range of benchmarks – some blended reflecting range of manager benchmarks • Two use inflation plus benchmarks • Outperformance targets between +1% and 4% pa; higher for inflation plus 16
Our Objectives We want to achieve We want to avoid • Long term net of fees • Restricted opportunity outperformance set – no consultant ‘buy’ lists • Blend that improves • Over diversification; risk adjusted returns blends that reduce risk • Long term adjusted returns partnerships; success • Frequent (costly) is not having to manager changes change managers • Higher overall costs than • Integration of RI before pooling 17
Responsible Investment Why it matters to us We need from you • Sustainability at core of • Evidence of ESG our corporate and integration investment culture • Active engagement • Effective stewardship • Quarterly reporting drives better returns • UK Stewardship Code, • We will exercise voting UN PRI or international on internal and external equivalent mandates 18
Selection Process • Transparent, open and fair Complementarity in practice* o OJEU principles compliant Manager Weight Return Info (%) (% pa) ratio • Three categories for A 30 9.9 0.9 scoring o Technical/quality – B 50 8.3 0.4 assessing each manager C 20 11.6 1.0 o Complementarity – assessing manager Total 1.0 combinations o Value for money * Based on sample manager combination (Mercer) 19
Border to Coast Pensions Partnership Ltd Alternatives Mark Lyon
Key Aims of Structure ECONOMIES OF INCORPORATE SCALE LEGACY ASSETS ADAPTABILITY COST EFFICIENCY OPERATIONAL FLEXIBILITY SIMPLICITY 21
Relationships with Managers Types of investments We are looking for Traditional GP/LP Partnerships Co-investments Transparency New opportunities Managed Accounts Club Deals/JVs Knowledge Transfer 22
Investment process Investment Allocation • Strategic asset allocation remains with Partner Funds Partner Funds Investment Selection Border to Coast • Investment selection Due Diligence and portfolio structure determined by Border Border to Coast to Coast 23
Border to Coast Pensions Partnership Ltd Rachel Elwell
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