Quentin Marshall, chair of Kensington and Chelsea’s £1.9bn pension scheme, has delivered the very best efficiency of any UK native authority fund over the previous decade by parking half of its property in a world fairness index tracker.
Marshall, who has chaired the fund since 2014, stated particular person inventory or fund choice hinders fairly than helps drive returns and he avoids tactical choice making when his staff meets to evaluate its investments.
“All three of these issues, publish dangers and publish prices, positively don’t add worth,” he instructed the Monetary Occasions 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 specifically about consultants who advise pension funds on funding choices and “depend on backward wanting information which is certainly proven to be fully and completely ineffective as a supply of prediction”.
Over the previous decade, the 51-year-old Conservative celebration councillor and banker has delivered common annual returns of 10.8 per cent for the pensions of staff at Kensington and Chelsea’s council, which supplies providers to each the wealthiest components of the UK and neighbourhoods with important deprivation.
The efficiency, pushed by a heavy fairness publicity, outstrips different native authorities, in line with shareholder advisory group PIRC. Marshall’s fund was the one native authority to realize 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 not like lots of the individuals who run the patchwork of pension funds for presidency staff throughout the nation. The councillor for the ward of Brompton can be chief government at Weatherbys personal financial institution in Mayfair and beforehand held senior funding roles at Coutts and UBS Wealth Administration.
Marshall attributes his efficiency partly to creating few choices. His staff meets formally to evaluate its strategic asset allocation yearly 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 world fairness index publicity to exclude three firms 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 choice 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 firms. 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 had been broadly thought of to ship poor worth to the general public purse.
“All governments of all stripes have a large temptation to maneuver overt spending from the general public eye . . . but when it really had 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 feel they’re sorely tempted to vary 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 current asset lessons by way of return”.
As the federal government pushes consolidation of native authority pension property, Marshall stated it was “completely basic” that strategic asset allocation choices stay with the native authorities, as a result of they continue to be liable for making certain that pensions are paid. Totally 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’ll permit choices 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.
“Should you had been to divorce strategic asset allocation from the underlying legal responsibility construction you’d have an actual downside — the chain of accountability is basically vital,” Marshall stated.
Kensington and Chelsea is within the technique 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, which means it estimates it will possibly pay twice as a lot because the pensions owed.
As a consequence, contribution charges into the pension have been diminished, releasing up more cash for the council to spend on native providers.
Whereas Marshall has some sympathy for the federal government’s transfer to take funding choices out of the fingers of councillors, who depend on recommendation from pension consultants, he hopes that the federal government will depart sufficient flexibility within the system so “smart folks” can disagree.
“Something that’s too inflexible and too doctrinaire is I feel more likely 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 can have an actual affect on whether or not your native library will keep open and grandmother will get excellent care,” he stated.
