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Baillie Gifford and other UK active fund managers are at risk of losing billions of pounds in mandates as the government forces consolidation of England and Wales’s sprawling £392bn Local Government Pension Scheme.
The Edinburgh-based firm had the largest mandates with the two LGPS pools which are about to be closed, Access and Brunel Pension Partnership, according to data seen by the Financial Times. It currently runs strategies worth around £8.4bn and £1.2bn for them.
Chancellor Rachel Reeves has been seeking to pool the management of LGPS assets to lower costs and create larger funds capable of investing in big infrastructure projects and fast growing companies. The changes could potentially mean less money to be deployed with asset managers, and cut their fees as they compete for a smaller pool of mandates.
The consolidation “ultimately creates a challenge” for UK investment managers, said Iain Campbell, a consultant at Hymans Robertson, adding that the government had “made it clear” that it wanted pools to eventually manage more LGPS assets in-house.
UK-domiciled active funds have suffered years of outflows as clients shifted to lower-cost passive funds, with net outflows already reaching £13.7bn this year so far. That has surpassed the £11.7bn that was pulled in the whole of last year, but well short of the more than £33bn withdrawn in 2023, according to data from Morningstar.
There are currently eight so-called pools across England and Wales managing part of the assets of 86 local authority pension funds.
The remaining six pools will manage all of their assets, with close to £90bn transferring from Access and Brunel, by April next year. Fidelity Investments, Schroders, M&G and Neuberger Berman are among active fund managers most exposed to the two pools.
People close to Baillie Gifford and other asset managers said the changes would not necessarily lead to a loss of mandates because the remaining pools could still stick with them, while any changes could take years to be implemented.
Chris Murphy, a partner at Baillie Gifford, which manages about £210bn, said the firm’s relationship with local authority funds had been built on “adaptability and long-term thinking” over nearly 40 years.
“As pooling evolves, we will continue to contribute in ways that support our clients’ long-term objectives,” he said.
Baillie Gifford has mandates with some of the remaining LGPS pools, including about £1.2bn with Border to Coast and about £830mn with LGPS Central, each of which will receive some of the funds in Access and Brunel.
However, Jill Davys, head of LGPS at consultancy Redington, said this could count against the Scottish company if pools decided that they had too much exposure to a single manager.
M&G and Fidelity Investments each managed more than £3bn across bond and global equity strategies for Access, while Schroders has an equity mandate worth around £1.5bn with Access. Neuberger Berman has a £1.9bn multi-asset credit mandate with Brunel.
People close to the remaining pools said any changes in their mandates would not be rushed to avoid excessive transition costs, and could take years.
The UK government said earlier this year it had gained “valuable learnings” from Canada’s model of very large, professionally run pension funds, whose key strength included “in-house investment management” which enhanced control and reduced reliance on outside managers.
The FT’s analysis found that Access had mandates with 20 active fund managers at the end of June, while Brunel had almost 30, across multi-manager strategies.
Additional reporting by Emma Dunkley in London
