The London Pensions Fund Authority (“LPFA”) has released its 2014 Annual Report, recording that its assets grew by £196m during 2013-14, to £4.9bn.
Despite challenging market conditions, its newly merged Fund saw strong growth during 2013- 14. Critically, LPFA had a funding level of 93% as at the end of March 2014, with its best in class deficit reduction between 2010-2013 strengthened by a further £171 million improvement in its position during the reporting period. It was recently reported as top of the Local Government Chronicle performance table for LGPS deficit reduction. [The valuation process included securing £300m of additional assets from employers with greater credit risk to ensure that their funding gaps are closed more quickly by paying higher contributions.]
Whilst LPFA has reduced the risks from inflation through some £1billion of inflation hedging, its assets growth has proved steadfast during 2013-14, with an overall return of 6.1% over the year supplemented by particularly strong performance in certain holdings. Infrastructure proved to be the star performer, returning 20% due to the successful sale of an investment held since 2004. The Fund’s global equity investments generated a return of +7.1%, ahead of a benchmark return of +6.4%.
LPFA is aiming to continue its preference for converting to internally managed, lower fee based assets and develop partnerships based on its asset and liability management capabilities. Its internally managed “Buy & Hold” equity strategy, greater use of co-investment in private equity funds and direct housing and infrastructure deals all reflect improvements in our capability. Realisations are steadily being redeployed to boost LPFA’s allocation to illiquid assets, with the aim of generating revenue returns that better match its risk adjusted liability targets.
[In addition to a strong financial performance, laying a foundation for stable, long-term growth, the LPFA has also cemented its reputation as an international centre of excellence in the provision of pensions services. During 2013-14, 99% of customer queries were answered on time, and 98% of members now identify themselves as satisfied with the service provided to them.]
Susan Martin, LPFA CEO, commented:
“In the wake of a highly evolutionary year for the LGPS, neither the focus on liability management nor the debate as to how LGPS funds will be organised nationwide must be allowed to stop here. LPFA has been an active contributor to this debate and is encouraging greater voluntary collaboration between LGPS funds, working in partnership with other local authorities to achieve efficiencies for both our fund and the wider public sector.”
Edmund Truell, LPFA Chairman, added:
“The LPFA team is emphatically delivering on the organisation’s mission to provide an excellent, cost effective pensions service to meet the needs of our stakeholders. Going forward, we will redouble our focus on managing both assets and liabilities to ensure LPFA continue to have the funds to pay existing and future pensions.”