LGPS pooling body the London CIV (LCIV) must reset its relationship with member funds to reverse a “pernicious” lack of trust, according to a hard-hitting official review.
Room151 has seen a copy of an independent governance review produced for the CIV in November, which said that some funds are not fully engaged “and seem to be growing increasingly disgruntled” with the body.
The emergence of the critical review comes after chief investment officer Julian Pendock became the latest senior figure to leave the LCIV.
The governance report was produced by financial adviser Willis Towers Watson, which surveyed more than 50 pension officers, committee chairs and/or members of the Pensions CIV Sectoral Joint Committee, and also London borough treasurers.
It said of the survey: “The level of trust between different stakeholders and LCIV was a clear issue, and a lack of trust has a pernicious effect spreading across many facets of the pooling challenge.
“We note that trust takes significant time and effort to foster, but also that shifting people from a position of mistrust is an exponentially greater challenge than developing trust from a ‘neutral’ starting point.”
The survey scores indicated “a pervasive sense of dissatisfaction with the status quo” according to the report authors.
Of 28 questions posed, just nine registered an average response score above the neutral level of 50 (with zero the lowest and 100 the highest ranking possible).
The lowest scores from the survey showed a ranking of just 29 in favour of the statement: “I believe that London CIV should have more authority in relation to manager selection than they currently do”.
The second lowest level of support (36) came for the statement: “There are adequate review procedures, relating to key decisions taken by London CIV, in place for stakeholders.”
The governance review pointed out that the CIV is in an “invidious position” because it was “attempting to deliver on a complex and challenging task, under-resourced and underfunded…”.
It also placed its identification of challenges in the context of the CIV’s shift from a voluntary initiative to a compulsory pooling system as mandated by government.
“It is far from clear that the inherited structures and governance model under the former voluntary circumstances remain appropriate in the new environment,” the report said.
Additionally, the authors also said they did not observe any significant lack of collective will among those surveyed for the CIV to be successful.
However, they said that in order for the CIV to succeed, “stakeholders must be willing to accept trade-offs, and perhaps those trade-offs may be more significant than current appetites.”
The authors added: “It is important that we note here that while LCIV must assume responsibility for the genesis of many of the issues identified — and the potential solutions to them — it does not bear this responsibility alone.”
Recommendations included in the report included a call for the CIV to adopt a more narrowly-defined statement of purpose.
The report also said that the number of full committee meetings (with representatives of all 32 boroughs) should be reduced and replaced by greater sub-committee working.
In addition, an independent resourcing and cost model review should be carried out, it said.
“To move forward effectively,” the report said, “LCIV and all stakeholders need to look for an opportunity to reset their relationship to facilitate better working relationships and engagement.
“This review and its recommendations hopefully offers such a reset point.”
Warwick Lightfoot, vice chair of the investment committee at Royal Borough of Kensington and Chelsea, told Room151 that he believed the current governance of the CIV was a “clumsy arrangement”.
He said: “Trust seems a bit precious as a word. I don’t think it is a matter of trust — it is about being satisfied about transparency, accountability and control.”
He added: “When representatives from the CIV came to talk to us and described their procedures I haven’t come away more confident about what they were doing.
“I had reservations over custody of assets, the selection of fund managers and the amount they are being paid.
“I like the idea of a London-wide vehicle you can opt into — that is pretty harmless.
“However, when it is mandatory you lose control of decisions and the ability to hold those making the decisions to account.”
Mark Hyde Harrison, interim chief executive of London CIV, said: “London CIV has achieved a great deal since it was established two and a half years ago and we continue to work hard alongside London boroughs to build on our success and respond to the challenges we are facing.
“We are actively taking on board the findings of our governance review and are developing recommendations with our colleagues in the boroughs that we will put to London borough leaders in March.
“London was a pioneer in establishing pooled arrangements and it makes sense to take stock now on how best to deliver the original vision for the CIV in the light of the wider changes that are happening in local authority pension fund management.”
Vice president of the Society of London Treasurers (SLT) Gerald Armaroth, strategic director of resources at the London Borough of Sutton, told Room151: “The governance review has highlighted some important issues which SLT and elected members are working through with the CIV board to ensure that the CIV remains on course to deliver clear strategic and operational objectives for the short, medium and longer term benefit to LGPS funds in London and its scheme members.”
Separately, at a meeting on Tuesday, Westminster City Council was due to abandon plans for a joint procurement with the London CIV for a fixed income manager.
A report to the council’s pension fund committee said that its existing contract with fund manager Insight Investment Management would expire before the CIV could appoint a new external manager.
In addition, it said the CIV’s “global fixed income mandate was not congruent with the pension fund committee’s preference for a long duration buy and maintain style mandate”.
As a result, the council was set to renew its contract with Insight.
