Border to Coast Pensions Partnership Ltd

Transcription

1 Border to Coast Pensions Partnership Ltd Manager Day 11 December 2018

2 Purpose of today 1. To update you on progress at Border to Coast 2. To outline the timing and details of our externallymanaged global Sub-Fund launch 3. To set out our approach to manager selection and what you should expect 4. To answer your questions 2

3 Border to Coast Pensions Partnership 12 Likeminded Local Government Pension Funds c. 50bn Assets Under Management Internal & External Management 3

4 Border to Coast: the story so far Phase 1: establishing pool and guiding principles Phase 2: Govt approval, funds commitment and building blocks established by project team Phase 3: transition to permanent team and building Border to Coast Phase 4: transition of assets and running as Business as Usual Jan 2015 July 2016 July 2016 Dec 2017 Dec 2017 July 2018 July 2018 Guiding principles 1. Meet Government aims (governance, RI, VFM and infrastructure) 2. One Fund, One Vote 3. Funds retain governance role and ownership of asset allocation 4. Generate improved net of fees risk adjusted performance 5. Internal management capability 6. Improved resilience and capacity over existing structures 7. Shared team in one location 4

5 Border to Coast: Why Are We Here? Making a difference to investment outcomes for Local Government Pension Funds through pooling to create a stronger voice; working in partnership to deliver cost effective, innovative, and responsible investment now and into the future; thereby enabling great, sustainable performance. 5

6 Border to Coast: What Do We Want To Be? Collegiate a collegiate organisation: working together in an open and trusting environment with shared vision and goals to deliver long-term, strong and sustainable outcomes for customers; Transparent Customer owned, Customer focussed Sustainable a sustainable organisation: investing in our colleagues by facilitating work-life balance; by encouraging personal and professional development; and supporting a creative, flexible and open to change culture that is equipped to evolve new capabilities as customer needs change; a transparent organisation: maintaining customer and public trust in Border to Coast s integrity to enable us to deliver our objectives. 6

7 Border to Coast: progress in 2018 Milestones achieved FCA authorisation (FRN ) and ACS approval (PRN QIS suitable for professional customers only) in place Board and team appointed: c.50 employees and 5 NEDs New office established Toronto Square, Leeds 8bn of assets under management both internally and externally managed Next steps in 2019 Further investment capability build Focus on corporate and people strategy Building our voice 7

8 Border to Coast: Board Chris Hitchen Enid Rowlands Tanya Castell Cllr John Weighell Chairman Non-Executive Director Non-Executive Director Non-Executive Director Rachel Elwell Fiona Miller Cllr Sue Ellis Chief Executive Officer Chief Operating Officer Non-Executive Director 8

9 Border to Coast Pensions Partnership Ltd Investment Team Daniel Booth

10 Investment Team structure: 2018/19 Plan CEO Rachel Elwell CIO Daniel Booth Equities 8 (+1) Alternatives 3 (+3) Fixed Income 1 (+2) External Investment Capabilities 3 (+1) Research 3 (+4) Risk 1 (+3) 10

11 Sub-Fund launches to date Border to Coast - FCA Regulated ACS Structure UK Listed Equity Fund Overseas Developed Fund Emerging Market Equity Fund UK Listed Equity Alpha Fund Size: 3.9bn Launch: July 18 Size: 2.5bn Launch: July 18 Size: 0.7bn Launch: Oct 18 Size: 1.0bn Launch: Dec 18 BM: FTSE All Share Target: +1% pa BM: Regional Comp Target: +1% pa BM: S&P Emerging Target: +1% pa BM: FTSE All Share Target: +2% pa 11

12 Capability launch high level timetable Launched in 2018 Scheduled for onwards Equities UK Listed Equity Overseas Developed Emerging Equities UK Listed Equity Alpha Global Equity Alpha Emerging Market, other Alternatives PE, infrastructure, private debt, diversified Bonds Fund range TBA Multi-asset Fund range TBA Property Fund range TBA 12

13 Border to Coast Pensions Partnership Ltd Externally Managed Funds Graham Long

14 External Investment Capabilities Team Graham Long Head of Team Over 30 years experience Previously CIO at Aviva UK Life Senior management roles in financial services Anthony Petalas Portfolio Manager CFA qualified with 10 years investment experience Joined from Investment Advisory team at KPMG Previously a consultant with IFS in Singapore Ryan Boothroyd Portfolio Manager CFA qualified with 5 years investment experience Joined from Investment Strategy team at RPMI Railpen Previously a portfolio manager with Janus Henderson 14

15 Sub-Fund Investment Philosophy We want to achieve Long term net of fees outperformance High active share (differentiated returns) Blend that improves risk adjusted returns Long term partnerships; success is not having to change managers Integration of Responsible Investment We want to avoid Restricted opportunity set no consultant buy lists Benchmark-like exposure Over diversification; blends that reduce risk adjusted returns Frequent (costly) manager changes Higher overall costs than before pooling 15

16 Update on UK Listed Equity Alpha Fund 16

17 Existing UK Mandates 5 Partner Funds with Active UK Equity Mandates 7 mandates across 7 fund managers Mix of investment styles Broad consistency of benchmarks 5 outperformance targets

18 UK Listed Equity Alpha Fund Starting AUM: 1.0bn Managers: 3 Benchmark: Performance Target: Risk: FTSE All Share Index +2% pa rolling 3 years (net) 2% to 5% tracking error 18

19 UK Listed Equity Alpha Fund Three high quality fund managers with excellent long-term track records Blend of complementary investment styles and range of market caps Janus Henderson - Small Cap Growth 15% UBS - All Cap Value 50% Diversification benefit due to low correlation between managers sources of outperformance Very competitive fees Substantial cost savings on a pool level Baillie Gifford - All Cap Growth 35% 19

20 Global Equity Alpha Fund 20

21 Existing Mandates 9 Partner Funds with Global Equity Mandates 25+ mandates across 20+ fund managers Active & factor strategies 5+ benchmark arrangements Emerging markets/uk included and excluded 5+ performance targets Up to +4%, some inflation+

22 Global Equity Alpha Fund Starting AUM: 4-5bn Managers: 4-6 Benchmark: Performance Target: Risk: FTSE All World Index +2% pa rolling 3 years (net) 2% to 5% tracking error 22

23 Global vs. UK Manager Selections Scale up to 5bn vs. 1bn More mandates, larger mandate size Scope to access more specialist managers Larger universe, wide variety of investment approaches Challenge of managing selection process Many more potential combinations Additional complexity Importance of specialist managers in achieving performance target Challenge of managing increased number of mandates Economies of scale Operational complexity 23

24 Indicative Fund Structure Global Equity Manager 1 Global Equity Manager 2 Global Equity Manager 3 Global Equity Manager 4 Multi-Manager Mandate (Specialist focus) Additional Services 24

25 What Does This Give Us? Global Equity Mandates: Blend of highly-active, differentiated global equity managers. Benefits of scale via large mandate sizes. Manageable selection process. Access to multiple investment styles. Multi-Manager Mandate: Access to market cap or regional specialists. Potential for additional services (e.g. risk or implementation). 25

26 Selection Process 26

27 What Does it Mean in Practice? 2 selection processes Global Equity and Multi-Manager Global Equity RFP: Border to Coast led selection process with Mercer support Indicative mandate sizes of 0.5bn 1.5bn Blend of investment styles not predetermined Potential for centralised dealing: Two fee quotes Paper portfolios Track record protected 27

28 Selection Process Transparent, open and fair OJEU principles compliant Two RFPs one for global equity one for multi-manager Key steps: 1. Technical/quality assessing each manager 2. Value for money 3. Complementarity assessing manager combinations 4. Interviews clarification of responses Criteria Weighting Minimum requirements Pass / fail Technical Questions 50% Price: Value for Money 20% Fit / Complementarity 30% Total 100% 28

29 Complementarity in Practice UK Alpha Underlying portfolio managers fishing in very different pools 100 FTSE All Share Index Market Cap ( bn) log scale 10 UBS Large Cap Value UK Equity Alpha Fund Baillie Gifford Mid Cap Growth Janus Henderson Small Cap GARP Price to Earnings Ratio Source: Border to Coast, Bloomberg, as at 30 September Notes: Relative to FTSE All Share ex-investment Trust. All ratios are aggregated from the underlying stocks and are 12m forward where available, 12m trailing if not. 29

30 What Are We Looking For? Highly-active global equity managers with differentiated performance Long-term, low turnover approach with and clear evidence of RI Quant strategies should be alpha-focussed - no pure factor or smart beta Multiple responses to the global equity RFP are limited to : o Clear differences in investment approach or style o Only one mandate per manager per Sub-Fund will be awarded 30

31 Responsible Investment Why it matters to us Sustainability at core of our corporate and investment culture Effective stewardship leads to better returns Collaborative RI & voting policies to leverage scale Vote internal and external mandates via V&E partner We need from you Demonstrate ESG integration Ability to adhere to Border to Coast RI policies Active engagement Quarterly reporting on RI activities UK Stewardship Code, UN PRI or international equivalent 31

32 Minimum Criteria for Global Equity RFP 1. Performance target of at least benchmark +1.5% pa net of fees 2. Strategy assets under management greater than 1bn 3. Available capacity of at least 500m 4. At least 5-years of realised track record 5. Fees relating to performance are unacceptable 6. Maximum fee of 50bps overall outcome will be materially lower 32

33 Indicative Timetable Q RFP launched RFP launched in January 2019 Q RFP responses Responses to RFP within around 4 weeks of launch Q Pass / Fail Responses screened on pass / fail criteria Q Scoring Scoring by Mercer and Border to Coast Q Complementarity Top 2-3 managers in each style tested Q Manager Interviews Clarification of RFP responses Q Appointments Manager appointments Q Transition Transition of assets begins Q Fund launch Tentative Fund Launch Date 33

34 Hints and Tips for the RFP DO - Stick to the word limit DO - Address the questions asked DO - Provide data in our specified format DON T - Assume knowledge of your firm or strategy DON T Submit strategies that don t meet the pass / fail criteria 34

35 Disclaimer The material in this presentation has been prepared by Border to Coast Pensions Partnership Limited ( Border to Coast ) and is current as at the date of this presentation. This information is given in summary form and does not purport to be complete. Information in this presentation, including any forecast financial information, should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments and does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to these matters, any relevant offer document and in particular, you should seek independent financial advice. All securities and financial product or instrument transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. This presentation may contain forward looking statements including statements regarding our intent, belief or current expectations with respect to Border to Coast s businesses and operations, market conditions, results of operation and financial condition, capital adequacy, specific provisions and risk management practices. Readers are cautioned not to place undue reliance on these forward looking statements. Border to Coast does not undertake any obligation to publicly release the result of any revisions to these forward looking statements to reflect events or circumstances after the date hereof to reflect the occurrence of unanticipated events. While due care has been used in the preparation of any forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Border to Coast s control. Past performance is not a reliable indication of future performance. The information in this presentation is provided as is and as available and is used at the recipients own risk. To the fullest extent available by law, Border to Coast accepts no liability (including tort, strict liability or otherwise) for any loss or damage arising from any use of, or reliance on, any information provided in this presentation howsoever caused. This presentation is suitable for Professional customers only and may not be distributed without express permission of Border to Coast. Border to Coast is authorised and regulated by the Financial Conduct Authority whose address is 12 Endeavour Square London E20 1JN. Border to Coast is registered at 5 th Floor Toronto Square Leeds LS1 2HJ. 35