Investment

The London Pensions Fund Authority (LPFA) is one of the largest Local Government Pension Schemes (LGPS) in the UK. The market value of assets under management at 31st March 2012 was £4.2 billion.  

The LPFA's assets were managed as a single fund until 1993. The decision was then taken to divide the Fund notionally into the Active Sub-Fund (ASF) and the Pensioner Sub-Fund (PSF). The ASF contains employers who are still contributing to the Fund. The majority of the employers in the PSF have either deferred members or current pensioners only and their schemes are closed to new entrants.  

Due to the different maturity and liability profiles of the two Sub-Funds, an appropriate investment strategy was developed and implemented to best fit the requirements of the two Sub-Funds. This investment strategy, as detailed below, is reviewed and fine-tuned regularly.

 

Investment Strategy

The current Investment Strategy is set out in the published 

Statement of Investment Principles (SIP). The latest SIP was formally approved by the LPFA Board in June 2010 and updated in June 2011.

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. The Investment Team is headed by Vanessa James, Investment Director who reports regularly to the Investment Committee.



Risk Management

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.



Investment Managers

LPFA currently employs 8 mainstream fund managers (excluding various managers for alterative assets). 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.



Current Portfolio

The market value of the Fund at 31 March 2012 was:

Active sub-fund

Asset Manager Distribution (£m)
Equities 1,914.6
Legal & General 521.6
MFS 563.3
Newton 409.2
Satellite 77.7
Private Equity 342.8
   
BlackRock 274.2
   
Diversifying Assets 426.0
Infrastructure 128.8
Property 164.0
Commodities 48.7
Opportunity                  27.7
Corporate Bonds 56.8
   
Cash 71.9
   
Total Active sub-fund 2,686.7

 

Pensioner sub-fund

Asset Manager Distribution (£m)
Active Bonds 796.1
BlackRock 161.5
ECM 271.0
Insight 363.6
   
Equity 195.3
Passive Equity - L&G 36.3
Synthetic Equity - Insight 159
   
Total Active 991.4
   
Cash Flow Matching 492.9
   
Cash 10
   
Diversifying assets 32.1
Total Pensioner sub-fund 1,526.4

 



Performance

The historic performance of the sub-funds for periods to 31 March 2012 was:

Active Sub-Fund

Year  Performance Benchmark
1 year 2.2% 2.9%
5 years 2.1% 3.4%
10 years 4.1% 5%

 

Pensioner Sub-Fund

Year Performance Benchmark
1 year 6.5% 4.7%
5 years 7.3% 6.6%
10 years 6.7% 6.5%