Border to Coast Pensions Partnership, the United Kingdom’s public sector pension pool which manages £55 billion ($75 billion) on behalf of 11 partner funds, has just committed an additional £1.2 billion ($1.6 billion) to private market fund managers. It’s part of a £2.7 billion ($3.6 billion) private markets program announced in July 2021 deployed across infrastructure, private equity, and private credit. Securing access to the latest cohort of sought-after managers is a coup for the pool and follows a carefully structured process of outreach and engagement.
Early engagement with target managers long before the formal fundraising process began was key, explains Mark Lyon, head of internal management at Border to Coast. As was leaning on existing relationships with partners to secure introductions and open the door to the brightest and best GPs.
Once the conversation began, Border to Coast made much of its scale – it’s one of the largest UK pools – long-term outlook and ability to act quickly. Enabled by putting in place a due diligence process that ensures clear guidance for GPs over the likelihood of the pool committing to a strategy, allowing managers to reserve capacity with confidence.
Fees
Despite mandating to expensive, sought-after external managers, the private markets allocation is on track to deliver promised fee reductions.
“At launch in 2018, we anticipated we would generate annual fee savings of 25-50 bps per annum from our private markets program over the long-term and we are proud to report we are on track to achieve this,” says Lyon.
A process he also credits to early engagement, the ability to commit larger amounts of capital with allows the fund to access lower fee rates, plus leveraging the pool’s collective size and relationships with the wider LGPS which comprises a total of eight pools of capital.
“Key ways we negotiated included requesting LGPS fee rates, targeting strategies with lower fee loads – such as private equity co-investment funds – and challenging expenses arrangements.”
Co-investment
Speaking to Top1000funds.com last year, Border to Coast CIO Daniel Booth explained the extent to which co-investment drives down fees.
“We are generating quite meaningful savings through the aggregation of the assets and getting discounts. Alternatives have a very costly implementation cost, so we are making sure we are as efficient as possible on funds and co-investment which is usually fee free or half fees.”
As well as putting fee pressure on external managers, Border to Coast also expects higher returns. The fund targets a 2 per cent outperformance from external managers versus 1 per cent outperformance for internal management.
“We expect more for external management. We look at the relative cost savings to manage internally, the probability of success and the alpha potential among other things. There are about 10 things on our checklist.”
Factors external managers will have to consider as the pool expands its private markets allocation.
“The three-year Series 1 of the private markets program will come to an end in March 2022 and we anticipate making five more fund investments.
“We expect to launch Series 2 of the private markets program in April 2022, with a similar number of commitments to Series 1 across all of our strategies.”
