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

Quentin Marshall, chairman of the £1.9bn Kensington and Chelsea Pension Scheme, has had the very best efficiency of any UK native authority fund over the previous decade by inserting half of its belongings in a world inventory index.

Marshall, who has chaired the fund since 2014, mentioned deciding on particular person shares or funds hinders quite than helps generate returns and that he avoids making tactical choices when his staff meets to overview his investments.

“These three issues, dangers and prices, add completely no worth,” he instructed the Monetary Occasions in an interview at his Mayfair workplace.

“The entire asset administration trade is constructed on the premise that they’ve worth,” Marshall mentioned. He’s significantly involved about consultants who advise pension funds on funding choices and “depend on retrospective knowledge that definitively seems to be completely ineffective as a supply of forecasting.”

Over the previous decade, the 51-year-old Conservative Social gathering councilor and banker has generated a mean annual return of 10.8 per cent for staff’ pensions at Kensington and Chelsea council, which offers providers to wealthier areas of the UK and to the richest neighborhoods. vital deprivation.

Efficiency, pushed by excessive fairness publicity, exceeds that of different native authorities, in accordance with shareholder advisory group PIRC. Marshall’s fund was the one native authority to attain double-digit annual returns over the previous decade. Subsequent finest was Bromley Council, which adopted with 9.3 per cent.

However Marshall is not like most people who handle the patchwork of public worker pension funds throughout the nation. The Brompton ward councilor can also be managing director of personal financial institution Weatherbys in Mayfair and beforehand held senior funding roles at Coutts and UBS Wealth Administration.

Marshall attributes his efficiency partially to the truth that he made few choices. His staff meets formally to overview its strategic asset allocation yearly, nevertheless it has been “broadly unchanged for a few years.”

Half of the fund tracks the BlackRock MSCI World Index, though it has carved out its publicity to international inventory indices to exclude three corporations linked to the devastating 2017 Grenfell hearth in Kensington and Chelsea.

His rejection of fund and inventory choosing makes him skeptical that the UK authorities’s resolution to pool all of the belongings of the England and Wales Native Authorities Pension Scheme, price £391 billion, will assist increase pension returns, though it helps the federal government’s makes an attempt to professionalise the funding course of.

Final month, Labor Chancellor Rachel Reeves outlined plans for a collection of “megafunds” to handle native council pension belongings, a transfer the federal government hopes will generate billions of kilos of funding in Britain’s infrastructure and fast-growing corporations. The reform program was supported by his Conservative predecessor Jeremy Hunt.

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

“To me, it has some nasty PPP overtones,” Marshall mentioned, referring to the public-private partnerships that boomed within the late Nineteen Nineties and early 2000s and had been broadly seen as low worth for cash. public.

“All governments, no matter their allegiances, are strongly tempted to cover apparent spending from public view. . . but when it actually was an funding, you wouldn’t want to inform us to do it,” he mentioned.

“Is that this cash used to satisfy pension obligations or is it a fund that the federal government can spend? . . I feel they’re terribly tempted to maneuver from the primary to the second,” Marshall added.

The Kensington and Chelsea Pension Fund has no infrastructure allocation. Marshall mentioned he checked out infrastructure “intently” however selected to not make investments resulting from “very excessive administration charges, little or no diversification from liquid securities markets and restricted upside potential in comparison with present asset lessons by way of yield.”

Because the Authorities pushes for the consolidation of native authorities’ pension belongings, Marshall mentioned it was “completely basic” that strategic asset allocation choices remained with native authorities, as they remained chargeable for making certain cost of pensions. Totally different boards have totally different threat tolerances relying on their pension plan’s funding stage, contribution charges and plan member demographics.

The federal government mentioned it might let choices about “high-level strategic asset allocation” stay with native councils, however instructed a session it believed the swimming pools’ experience made them finest positioned to tackle this process.

“For those who had been to separate strategic asset allocation from the underlying accountability construction, you’ll face an actual drawback: The chain of accountability is basically vital,” Marshall mentioned.

Kensington and Chelsea is constructing its property portfolio, with a goal asset allocation of 75 per cent in equities, 20 per cent in actual property and 5 per cent in listed bonds.

The council’s scheme has a funding stage of over 200 per cent, that means it believes it could actually pay twice as a lot because the pensions owed.

Because of this, pension contribution charges have been decreased, liberating up extra money for the council to spend on native providers.

Whereas Marshall has some sympathy for the federal government’s resolution to take away funding choices from advisers, who depend on the recommendation of pension consultants, he hopes the federal government will go away sufficient flexibility within the system in order that “wise folks” can disagree.

“Something that’s too inflexible and too doctrinaire is, I feel, prone to result in dangerous outcomes and residents needs to be involved about that as a result of we’re coping with £400 billion of belongings. . . That is actual cash that may have an actual affect on sustaining your native library and your grandmother’s means to obtain excellent care,” he mentioned.