1st April 2020 - LGPS Cost Transparency compliance and validation system

Byhiras goes live with the Cost Transparency compliance and validation system for the Scheme Advisory Board. Please see press release below for more:

Press release Byhiras Cost Transparency Platform for LGPS live pdf, 2 pages, 462KB

Table of contents

The LGPS Code of Transparency
The Templates
The Compliance System
Purpose of the Compliance System
Engagement with users
Frequently Asked Questions

Summary

The LGPS Scheme Advisory Board (Board / SAB) was set up under the Public Service Pensions Act 2013 and The Local Government Pension Scheme Regulations. The purpose of the Board is to seek to encourage best practice, increase transparency and coordinate technical and standards issues as well as liaise with ministerial bodies and relevant sector regulators.

The Board is keen that the LGPS is seen as a value led and innovative scheme and the increasing move toward investment fee transparency and consistency across pension funds / asset owners is forms part of this goal.

Cost transparency is also part of the revised CIPFA accounting standards issued for inclusion in LGPS and administering authorities’ statutory annual report and accounts as well as being included in the government’s criteria for pooling investments.

Investment costs are a complex area with which pension committees and officers need to be familiar. The LGPS Code of Transparency (described in more detail below) helps LGPS clients gather cost information in a consistent format. Cost information must always be viewed in context of risk and return and should only form part of any overall value for money assessment.

The Scheme Advisory Board has run a procurement for a collation and compliance system for all parties (funds, pools & investment managers ) to use. This compliance system will make the process of collation more efficient than the current ad hoc arrangements and will ensure the Board can monitor compliance for the funds and the pools – as well as streamlining the process for the managers providing the data in the first place. This summary page provides the background to the LGPS Code, the procurement of a compliance system and the next steps for relevant parties to understand. A set of frequently asked questions that have been raised by investment managers and LGPS clients is available here on the Board’s website.

The LGPS Code of Transparency

A Code of Transparency covering investment management fees and costs was developed and approved by the Board and launched in May 2017. (A copy of the Code can be found at http://lgpsboard.org/index.php/the-code#theCodetop). Fund managers to the LGPS are being encouraged to sign up to this Code and as at March 2020, there were over 130 signatory firms.

The total LGPS assets under management falling under the Code is estimated at over £190bn. The total proportion of LGPS assets that could be reported in compliance with the Code is likely to be around 80%.

The largest Investment Managers by LGPS assets under management are Legal & General, Baillie Gifford, BlackRock, Aberdeen Standard and Schroder (all in excess of £10bn). The signatory list also includes smaller, more specialist, managers holding one or two LGPS mandates and less than £0.5bn LGPS assets overall. A full list of managers signed up to the Code can be found on the Board website, this is updated as new signatories provide an organisation summary. Five LGPS investment pool companies are signatories; Border to Coast Pensions Partnership Limited, Brunel Pension Partnership Limited, LGPS Central Limited, Local Pensions Partnership Investments Ltd and London CIV. Link Fund Solutions, the provider of asset management services to the ACCESS and Wales pools, have also signed up. Northern have indicated their intention to do so soon.

From its outset, the Code of Transparency was an LGPS Advisory Board (England and Wales) initiative. However, since its launch, the Scottish Scheme Advisory Board and Scottish LGPS and LGPS (Northern Ireland) clients have been included at their request.

The Templates

In 2018, the Financial Conduct Authority (FCA) , and following its asset management market study, launched the Institutional Disclosure Working Group (IDWG) as part of the remedies package and noted the success of the LGPS Code.

The FCA wanted to see more consistent and standardised disclosure of costs and charges for institutional investors. It thought that a standardised disclosure template should provide institutional investors with a clearer understanding of the costs and charges for a given fund or mandate. This should allow investors to compare charges between providers and give them a clear expectation of the disclosure they can expect.

In November 2018, the Cost Transparency Initiative (CTI) was launched and became the organisation taking forward the work of the previous IDWG.

For the LGPS funds to have the relevant data to investigate and understand their respective fees and costs, the Scheme Advisory Board alongside the Investment Association developed the templates currently used by the Code. At present, the LGPS Code’s templates cover listed assets only for both segregated mandates and pooled funds. A copy of the LGPS IA template and other templates can be found at: http://www.lgpsboard.org/index.php/the-template, However, the CTI’s institutional-investor-wide templates have now been launched and have been adopted for the LGPS Code. There is a transitional period of up to 12 months for managers of listed assets to move from the current template to the CTI templates.

The Compliance System

As part of the Code, investment managers are required to complete and submit the template for the relevant mandate (without request) to their LGPS clients on either an annual or quarterly basis as agreed with their client. In order to streamline the process and make it more widely available, the SAB procured a system (through an OJEU process) from Byhiras which will take the form of online facility intended to:

  • Be capable of accepting and storing template data
  • Check the timeliness of data submission and report late returns
  • Ensure that template data is signed off by managers as ‘fair, clear and not misleading’
  • Provide a check against the MiFID II total cost amount submitted separately by managers to their LGPS clients

 

As well as ensuring compliance with the Code the system could be used by LGPS clients to:

  • Replace the existing excel format templates provided to them by managers
  • View a useful but limited set of onscreen reporting and comparison tools
  • Give permission to other LGPS clients or trusted third parties (e.g. their investment advisor) to access and export their template data
  • Provide advanced reporting facilities under a phase 2 development subject to the agreement of Code clients

 

In specifying the system, the Scheme Advisory Board placed great emphasis on security and confidentiality. The template data held within the compliance system will be separate from any other database held by Byhiras and cannot be shared by Byhiras with any third parties for any purpose.

The Board may publish aggregate totals or averages from the system as part of the scheme annual report. Such reporting will not identify any data at the fund, pool, manager or mandate level. This system went live on 1 April 2020.

Purpose of the Compliance System

The purpose of the compliance system is to provide cost effective template data collection and LGPS Code compliance checking, it includes useful but limited reporting and data comparison facilities.

The system is paid for from within the Board budget and funded by the levy. LGPS clients and investment managers will be provided access to the system free of any further charge.

The procurement process included in its specification the potential for a further phases of system development including detailed and customisable reporting and comparison tools plus facilities for LGPS asset pools to produce template data for clients and LGPS fund accounts to link with annual reports.

The Board will consider whether procuring further additions to the system to provide potentially costly and specialist analytical, data manipulation and benchmarking services from the Byhiras system is appropriate and with enough demand from LGPS clients to do so. While it may be that centrally procuring such facilities would provide the more cost-effective solution, the Board recognises that it may not be the wish of all LGPS clients to have such a service procured centrally but rather procured individually or collectively in groups of funds or pools.

To facilitate either option, the system has been specified to industry standards, therefore whichever supplier is selected by the Board it will be possible for LGPS clients to appoint their own providers who will be able, with the necessary manager permissions, to extract their template data from the compliance system for further analysis, reporting and benchmarking without the need for an additional collection exercise.

Engagement with users

Since Autumn 2019, the secretariat of the Scheme Advisory Board, together with Byhiras, have met with LGPS funds, LGPS pools and fund managers as widely as possible – both to explain the rationale and background to the system as well as to provide initial training on the use of the system.

As a result of these discussions, some Frequently Asked Questions (and responses) are provided on the SAB website.