The London Pensions Fund Authority has assets under management at 31 March 2016 of £4.6 billion.
Our overarching fiduciary duty is to ensure we have the money available to pay all the benefits as they fall due. Our duty is to make investments where we see the best return for our stakeholders, however, we aim to do so responsibly.
LPFA’s responsible investment approach is set out in our Statement of Investment Principles. Our objective is to use our influence as a large institutional investor to encourage responsible long-term behaviour in the companies in which we invest and through the voting mandates we give to our fund managers.
As a local authority pension fund LPFA is a member of the LAPFF (Local Authority Pension Fund Forum) collaborative group and has adopted the LAPFF’s major Policy Guidelines. We have asked our fund managers to vote consistently with these guidelines and engage with the investee companies whenever possible.
The LPFA Board comprises individuals with expertise in public service, commerce, audit, pension and fund management and our governance structure ensures that we understand our liabilities and make investments which provide the appropriate risk return trade-off. In addition we continue to build our in-house Investment Team, developing a quantitative approach to maximise returns and an asset and liability management platform, as well as exploring new investment opportunities and innovative investment techniques.
We report formally each year on our performance in our annual report, but each quarter on these pages we will publish an update which gives a snapshot of our latest progress.
The key to successful pension fund management is the adoption of Asset and Liability Management techniques. This is something we are working hard at delivering for ourselves and our clients. It was the central theme in our submission to the Department for Communities and Local Government on the future structure of the Local Government Pension Scheme. Without a clear understanding of liabilities, a pension fund cannot manage its assets to deliver the right amount of cash at the correct time to pay its pension liabilities. This approach is critical and it drives our management of funds on behalf of our employers.
At LPFA we take a holistic approach to Asset and Liability Management, this is unusual in Local Government Pension Schemes. We have substantially strengthened our Board, built new Asset and Liability Management expertise, and invested heavily in our Finance capability which brings significant insight and expertise to our operations. This is helping us to monitor and manage our historic deficit.
Please click the links below to see our latest Financial Monitoring Reports.
1. Solvency Report December 2016
2. Cash-flow Report December 2016
3. Investment Performance Report December 2016
Our Assets & List of Holdings - 31 March 2016
This chart shows the mix of assets we held as at 31 March 2016.
Notes on how our figures are calculated
Funding Ratio – This is calculated by dividing the net value of the Fund’s assets (“NAV”) by the estimated net present value (“NPV”) of our liabilities.
These are not actuarially calculated Funding Ratios. For the official Funding Ratio of the Fund (as at 31 March 2013), please visit the Fund Publications section of the LPFA website
Liabilities – The estimation of the Net Present Value of the Fund’s liabilities uses projected liability cash flows (calculated by the Fund’s actuary). These cash flows are then inflated using market estimations of future inflation rates (from RPI swap pricing) and discounted using LIBOR swap discount rates.
The liabilities on a Swaps +0% basis are calculated using discount rates that assume no additional spread above LIBOR rates. Therefore, it is a more conservative discounting method.
The liabilities on a Swaps +3% basis are calculated using discount rates that assume an additional spread of 3% above LIBOR rates, across the entire yield curve. This method of valuation is similar to that which is widely used by LGPS schemes to value the Net Present Value of their liabilities.
NAV/Asset Allocation – The Fund’s NAV figures, post 31 March 2013, are unaudited estimations of net value of the Fund’s assets. Such calculations include time-lagged valuations of illiquid assets (e.g. Private equity, Infrastructure & Property) which have relatively infrequent valuations.
A Breakdown of holdings as at 31 March 2015 can be found here.
The current Investment Strategy is set out in our Investment Strategy Statement. This was formally approved by the LPFA Board in October 2016.
The LPFA Board is responsible for the overall investment strategy but has delegated its power to the Investment Committee. The Investment Team is responsible for the monitoring and implementation of the investment strategy and manages the external fund managers.
Internally Managed Concentrated Global Equity Portfolio
LPFA is continuing to develop our internal capability to manage equities. Our Board has approved the investment decision of creating a concentrated, long term focused equity investment strategy for a significant proportion of our equity investment.
You can read about our approach to equities here.
You can view our portfolio here and how it is performing here.
LPFA manages the underlying investment risk to avoid undue losses. The primary risk faced by the Fund is that it does not have sufficient assets to meet its pension obligations as they fall due. The LPFA manages this long-term risk by conducting asset/liability studies. As a result of these studies, a long-term investment strategy has been adopted to hopefully achieve the expected rate of return and to minimise the risk of adverse outcomes.
Excluding various managers for Private Equity and Infrastructure assets, LPFA currently employs 9 mainstream fund managers (>1.5% of LPFA’s AUM). These fund managers were chosen, not only because of their high quality people, processes and historic performance, but also for their diversity of styles. This diversification contributes to risk control within the portfolio. Each fund manager is set a benchmark and performance objective around that benchmark.