Bus and rail company FirstGroup has brought together £1 billion ($1.33 billion) of pension scheme assets under the control of one authority in the U.K.’s public-sector Local Government Pension Scheme.
The move marks the first time that a private company has been able to combine all pension assets that had been previously managed by disparate local pension authorities together within a single public-sector fund.
Currently, FirstGroup’s pension assets are managed by three local authorities: the West Yorkshire Pension Fund, the South Yorkshire Pension Fund, and the Greater Manchester Pension Fund. With the move, £700 million of assets from the West Yorkshire and South Yorkshire pension fund will be moved into a new fund administered by the Manchester fund, together with £300 million that fund already manages.
FirstGroup, a FTSE 250 listed company, has assets in the local government scheme because it operates bus services in Britain — services that were previously run by local governments until the industry was privatized in the 1980s. It also operates the Greyhound bus line in the U.S.
Richard Murray, group head of pensions at FirstGroup, said that consolidating the assets will allow the company to better manage the risks across its assets within the Local Government Pension Scheme and give greater control over the investment strategy. “This will allow us to improve cost control while maintaining members’ benefits,” he said in a statement on Monday. The LGPS manages assets of more than £217 billion on behalf of five million members, making it one of the biggest defined benefit plans in the world, according to the Pensions and Lifetime Savings Association. It is administered locally by 101 local pension authorities.
Murray added that the company had initially thought consolidation would only be an option for public sector employers, but made a case for its pension scheme to be granted permission too.
“FirstGroup has a longstanding relationship with all three LGPS Funds,” he said in the statement, referring to the local authorities that had previously operated its pension funds. “Through the process we received support from all our stakeholders and this culminated in approval by the Secretary for State.”
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Hymans Robertson, the investment consultant that advised FirstGroup on the transaction, explained that there are more than 100 other private sector employers that are participants in the LGPS. Malcolm Stanley, senior consultant at Hymans Robertson, said having assets being managed across multiple administering authorities adds complexity for these employers. “This complexity adds burden both in cost and management time,” he said. “By pooling its LGPS funds, FirstGroup will not only reduce the issues brought by this complexity but will also gain greater influence over its overall investment strategy. Ultimately, it will be able to work with the Greater Manchester Pension Fund to design a bespoke investment strategy that better reflects its mature liabilities and benefit scheme members.”
Funds in the Local Government Pension Scheme are currently undergoing a process to allow all of the 91 funds operating in England and Wales to pool their assets to help funds drive down investment costs by using their scale to negotiate with fund managers. As part of this, the Greater Manchester Pension Fund is to form a £35 billion pool with the Merseyside and West Yorkshire Pension Fund from 2018.
In a written statement about the FirstGroup announcement, Kieran Quinn, chairperson of the Greater Manchester Pension Fund, said the fund was “proud” to be chosen as “the fund of choice” for employees and employers.