The simple secret behind the UK’s best performing council pension fund

Quentin Marshall, chair of Kensington and Chelsea’s £1.9bn pension scheme, has delivered one of the best efficiency of any UK native authority fund over the previous decade by parking half of its property in a worldwide fairness index tracker. 

Marshall, who has chaired the fund since 2014, stated particular person inventory or fund choice hinders reasonably than helps drive returns and he avoids tactical resolution making when his workforce meets to evaluate its investments.

“All three of these issues, publish dangers and publish prices, positively don’t add worth,” he instructed the Monetary Instances in an interview at his workplace in Mayfair.

“The entire asset administration business is constructed on the premise that they’ve worth,” Marshall stated. He’s withering particularly about consultants who advise pension funds on funding selections and “depend on backward trying knowledge which is certainly proven to be utterly and completely ineffective as a supply of prediction”. 

Over the previous decade, the 51-year-old Conservative get together councillor and banker has delivered common annual returns of 10.8 per cent for the pensions of employees at Kensington and Chelsea’s council, which supplies companies to each the wealthiest components of the UK and neighbourhoods with vital deprivation.

The efficiency, pushed by a heavy fairness publicity, outstrips different native authorities, in response to shareholder advisory group PIRC. Marshall’s fund was the one native authority to attain double digit annual returns over the previous decade. The second greatest was Bromley council, which trailed him with 9.3 per cent.

However Marshall is in contrast to lots of the individuals who run the patchwork of pension funds for presidency employees throughout the nation. The councillor for the ward of Brompton can be chief government at Weatherbys non-public financial institution in Mayfair and beforehand held senior funding roles at Coutts and UBS Wealth Administration.

Marshall attributes his efficiency partly to creating few selections. His workforce meets formally to evaluate its strategic asset allocation annually however it has been “broadly unchanged for a few years”.

Half of the fund follows the BlackRock MSCI world index tracker, albeit he has made a carve out in his international fairness index publicity to exclude three corporations linked to the 2017 devastating Grenfell fireplace in Kensington and Chelsea.

His rejection of fund and inventory choice makes him sceptical that the UK authorities’s resolution to pool the entire property of England and Wales’s £391bn native authorities pension scheme will assist increase pension returns, though he helps the federal government’s makes an attempt to professionalise the funding course of.

Final month Labour chancellor Rachel Reeves set out plans for a collection of “megafunds” to run native council pension property, a transfer the federal government hopes will drive billions of kilos of funding into British infrastructure and quick rising corporations. The reform programme was supported by her Tory predecessor Jeremy Hunt.

However Marshall doesn’t purchase their argument that the reforms will result in higher pension returns for money strapped councils.

“This has nasty overtones of PPP to me,” stated Marshall, referring to public-private partnerships that boomed within the late Nineteen Nineties and early 2000s and have been broadly thought of to ship poor worth to the general public purse.

“All governments of all stripes have an enormous temptation to maneuver overt spending from the general public eye . . . but when it really have been an funding you wouldn’t want to inform us to do it,” he stated.

“Is that this cash for discharging pension legal responsibility or is it a fund for presidency to spend . . . I believe they’re sorely tempted to alter it from the previous to the latter,” Marshall added.

The Kensington and Chelsea pension fund doesn’t have any allocation to infrastructure. Marshall stated he had checked out infrastructure “carefully” however had chosen to not make investments owing to “very excessive supervisor charges, little or no diversification compared to liquid securities markets and restricted upside versus present asset lessons by way of return”.  

As the federal government pushes consolidation of native authority pension property, Marshall stated it was “completely elementary” that strategic asset allocation selections stay with the native authorities, as a result of they continue to be answerable for making certain that pensions are paid. Completely different councils have completely different threat tolerances relying on the extent of funding of their pension scheme, contribution charges and the demography of scheme members. 

The federal government has signalled that it’s going to enable selections for “a high-level strategic asset allocation” to stay with native councils, however stated in a session it believes that experience within the swimming pools make them greatest positioned to tackle the duty.

“In the event you have been to divorce strategic asset allocation from the underlying legal responsibility construction you’d have an actual downside — the chain of accountability is basically essential,” Marshall stated. 

Kensington and Chelsea is within the means of increase its property portfolio, with a goal asset allocation of 75 per cent in equities, 20 per cent in property and 5 per cent in index-linked bonds.

The council’s scheme has a funding degree of over 200 per cent, that means it estimates it will probably pay twice as a lot because the pensions owed. 

As a consequence, contribution charges into the pension have been lowered, releasing up extra money for the council to spend on native companies. 

Whereas Marshall has some sympathy for the federal government’s transfer to take funding selections out of the arms of councillors, who depend on recommendation from pension consultants, he hopes that the federal government will depart sufficient flexibility within the system so “wise folks” can disagree. 

“Something that’s too inflexible and too doctrinaire is I believe prone to result in poor outcomes and residents ought to care about this as a result of it’s £400bn of property . . . that is actual cash that may have an actual influence on whether or not your native library will keep open and grandmother will get excellent care,” he stated.