London pension merger may slash fees

Proposals to pool the pension assets of London's 32 boroughs may result in more capital available for private equity firms, though commitments may come with heavily negotiated terms, predict industry sources. 

London pension schemes’ commitment to private equity has traditionally come via fund of funds and small scale direct investment.

The London Pension’s Fund Authority (LPFA), chaired by former Duke Street Capital chief executive Edmund Truell, is receiving support for its plan by London Mayor Boris Johnson and UK communities secretary Eric Pickles.

If the plan is executed, the larger entity would have “better bargaining power” on management fees and become less flexible on GP-friendly terms, said James Bevan, chief investment officer of London pension plan CCLA, and LPFA’s chief executive, Mike Taylor, in interviews with PE Manager. 

The plan however is not all bad news for the private equity industry, according to Taylor, who said combining the investment power of London pension schemes allows the city to invest in more illiquid asset classes including private equity and infrastructure.  

Bevan agreed that a pooled pension fund may allocate more to private equity because the “individual parcel sizes of private equity commitments are going to be within reach”. He added that a number of the smaller schemes are not in a position to sign private equity agreements currently.