Brunel and partner funds exploring options following government decision
Following the government’s recent announcement on pooling consolidation, Brunel is working with our partner funds to consider options for the next stage in our evolution.
As a company and as a pool, we have engaged with the government throughout the consolidation consultation process. Brunel advocated for a process for considering pool mergers which was transparent, fair, evidence-led and fully costed.
Brunel, and our peers, are very aware of our considerable progress and strengths as a pool, across client transitions (almost 90%), governance, cost efficiencies and value for money, asset class range, and Responsible Investment. We believe these place us in a strong position to find a solution that continues to benefit our partner funds and their members.
Our partnership is highly respected among LGPS pools and throughout the pensions sector, while our leadership on Responsible Investment gives us clout across the broader financial industry. The pool we have built has delivered on the original aims of pooling ahead of schedule for our partner funds and their members. As we look to the next stage of pooling, it is crucial that we continue to build on this progress.
A strong foundation
Since pooling, Brunel’s progress has been wide-ranging. Highlights include:
- As an FCA-authorised asset manager, we chose the most effective operating model for our size and ambitions, within the regulations set out by the FCA
- We are almost 90% transitioned, with more than £35bn AUM
- Brunel has already met several of the government’s pooling targets and priorities ahead of schedule:
- Cost savings of £46m per year by 2023-4 (ahead of our original aim)
- Provision of portfolios across multiple asset classes, including five private markets asset classes
- 32% of all pooled AUM was invested in the UK at the end of Q1 2024
- More than 30% of all client assets (pooled & non-pooled) are in private markets (incl. committed), of which more than £4.3bn are in UK assets
- “Private fund” allocation is already greater than three times the reported “Mansion House Compact II” 10% target, five years before the government’s target date
- UK private fund allocation is already two times the government’s reported 5% mandated minimum (five years ahead of target) – despite the lack of a target UK allocation in initial pooling guidelines
- Responsible Investment leadership: Positions/roles held by Brunel staff include: Chair of IIGCC, Investor Advisory Group for ISSB, co-sponsor & contributor to investment industry’s most widely-used Net Zero framework, pioneers of Paris-aligned passive indices
- Local impact investing success (see both UK map (p.7) and IPE Awards 2024)
- Strong governance and risk frameworks with a proven track record of working in partnership with our partner funds
In short, we did not simply meet the initial aims of pooling: we exceeded those aims and blazed a trail in Responsible Investment across the global asset owner space.
For these reasons, we strongly reject any suggestion that weaknesses as a pool explain the government’s recent invitation to Brunel’s partner funds to seek an alternative pooling arrangement.
Nevertheless, the pace of progress our partnership has already shown means we remain confident that our impact should, and will, continue. We embraced evolution and change when pooling began and thus are one of the most transitioned pools. We are determined to do the same for the next stage of pooling.
Throughout this process, we will be led by our partner funds. All our progress thus far has been made together, and we wish that to continue. We are strong believers in a multi-stakeholder approach.
We will continue to seek engagement with MHCLG and the Treasury as we plan for our next steps. Our priority remains unchanged: to seek the best outcomes for our partner funds and their members.
COMMENTS FROM OTHER STAKEHOLDERS
Mark Gayler, Client Group Chair, Brunel Pension Partnership, said:
“We are very proud of what we have achieved as a pool in our short existence, across all our key agendas. We know that our success has come from the strength of working together in partnership. We are exploring options to harness that strength for the future, so that our impact and influence can continue.”
Martin Hahn, CEO, Capital Dynamics, said:
“Our partnership with Brunel spanned eight years and we are proud of the relationship we have forged in a period of transformational progress for the clean energy sector. As a cornerstone investor in our clean energy solutions, Brunel’s leadership and vision in driving the UK’s transition to a net zero energy system has been invaluable. They have been a pioneering investor in local impact mandates through our UK clean energy funds, bringing significant investment to previously underserved communities and job creation, progression and local growth.
Brunel has also been central to shaping manager approaches to Responsible Investment in the UK, providing guidance that has strengthened our own and other managers’ ESG frameworks, helping to ensure they are among the most robust, impactful and enduring in private markets. We have achieved a great deal together as partners and I know I speak for everyone at Capital Dynamics in wishing the entire team the very best for the future.”
Dr Chris Sier, founder & CEO of ClearGlass, said:
“In very rare cases, it is possible to achieve fees well below those predicted by portfolio size, and this applies to all Brunel strategies delivered to underlying local authority clients. I must emphasise that such ’super-procurement capability’ is rare, 79% of strategies procured by local authority clients from Brunel are better than best quartile in the ClearGlass ranking. There are no scale economies in private markets. However, Brunel fees are lower than expectation, not because of scale, but because Brunel has negotiated effectively.”
Hans Georgeson, CEO, Royal London Asset Management, said:
“We believe our close working partnership with Brunel has contributed to the strong returns across the equity and sterling credit mandates we manage for their clients. This success stems from Brunel’s requirement for robust, repeatable, and competitively priced investment solutions. Our joint commitment to responsible investment and ambition to lead in this space have led to collaborative engagement with companies on topics ranging from cybersecurity risks to the need to enhance sustainability and resilience within the UK water sector. We are proud of what we are achieving together. We hope that the success of the Brunel team in creating a cost-conscious portfolio, that is capable of delivering risk-adjusted returns for Local Government Pension Schemes, is not lost in the broader requirement to deliver on the mandate set by the government.”
James O’Leary, Head of Infrastructure & Real Assets, StepStone Group, said:
“StepStone and Brunel have already committed £2.2bn (73% drawn down) to bespoke investment strategies encompassing both primary and tactical investments in infrastructure and real assets (Natural Capital) – including 20% in UK-based assets supporting the UK’s decarbonisation efforts.
Brunel’s investment approach is highly innovative in driving sustainable investments, attractive investment terms, and global diversification whilst being able to support Local Government Pension Scheme objectives, such as lower fees, investments in UK infrastructure, and flexibility to meet its client objectives and needs.”
Minal Patel, Global Head of Infrastructure, Schroders Capital, said:
“Brunel and its partner funds have been focused on infrastructure and the energy transition by investing over £600m into Schroders Greencoat UK and approximately a further £350m in UK place-based mandates. Brunel’s investment has supported decarbonisation of the UK energy system through investment in bioenergy, solar and wind infrastructure, electrification of power demand through investment in the UK’s largest heat network and tackling carbon intensive industry through investment in the government-backed green hydrogen. This is proof that LGPS can deliver for beneficiaries, enhance energy security and deliver on the UK government’s goals for net zero and productive capital at scale. We hope that more of the same can be delivered through the UK government’s pooling mission.”
Jon Hollick, Head of Global Real Estate ex Dach, UBS Asset Management, said:
“Over the years, our collaboration with the Brunel Private Markets team has grown into a strong partnership, deploying significant capital to achieve our shared goals. It’s worth highlighting the work with other LGPS investors in launching our UK Life Sciences real estate strategy in 2022, demonstrating the power of LGPS collaboration to unlock the potential of the growth of a sector, which can have positive economic and societal benefits.”