Analysis: Brunel focuses on ESG, long-term relationships … and low costs

Further details emerge of what new pensions pool seeks from managers

The £28bn (€31.5bn) Brunel Pensions Partnership is named in honour of Isambard Kingdom Brunel, the visionary Victorian engineer.

Brunel – the person – was second only to Winston Churchill in a BBC poll of the 100 ‘greatest Britons’ in 2002 — ahead of Charles Darwin, William Shakespeare and Isaac Newton.

So Brunel – the investment organization – certainly has a lot to live up to! And, as we are reporting today, it is doing what it can to match up to its illustrious namesake.

In an unusual move it has conducted a ‘reverse roadshow’ to explain to potential external asset managers what it is looking for from them, majoring on responsible investment – and low costs.

Brunel’s manager selection process may be the largest slug of clean-slate, explicitly responsible investment assets to hit the market in one process, given that all appointed fund managers should be “responsible” and show stewardship, good governance and the integration of ESG risks.

Brunel will look for action from managers on carbon footprinting 
and the Sustainable Development Goals. The volume of assets means Brunel can make some serious demands of managers who want to win its business.

But Brunel is also trying to quietly re-engineer investment mandates, calling on managers to think differently and “avoid clichés and waffle”.

It is explicit that costs are very important and that it will seek “scale savings”. But it also wants to build “good long-term relationships” with managers, with clear expectations and an understanding of each other’s needs and no “false pressures”.

There are no specifics about long-term mandates in the documents we have seen but there are echoes of the Environment Agency Pension Fund’s “Mandate of the Future” project five years ago in which it explored the construction of genuinely long-term investment mandates.

ESG permeates Brunel: even its new custodian relationship with State Street features ESG provisions.There has also been talk of possible “selective disinvestment” of carbon intensive companies. Member funds have faced pressure from campaigners: in November, for example, the Cornwall Pension Fund responded to a press release by Fossil Free UK (Fuelling the Fire), where it highlighted its investment in onshore windfarms and solar PV.

Notice that we are calling Brunel an investment organization and not a pension fund. It is a company owned by its member funds that was formally created in July last year and, like all the new pools, has faced a heavy workload to get operational in a short time-frame.

How will it work in practice? The individual member funds will continue to decide on asset class allocation to meet their own investment objectives, but Brunel will be responsible for selection and monitoring of the external investment managers. Once operational, each fund will be charged a service fee depending on the services taken up and assets under management.

And, given that Cornwall Pensions Committee Chairman Derek Holley has noted that “many of our current investments will be sold and reinvested with Brunel” – where does that leave the members’ existing roster of managers?

Here, for example, is Cornwall’s roster (as at August 2017, before the Aberdeen/Standard Life merger): Newton; Capital International; Insight; Standard Life; Wilshire Associates; Man FRM; Infracapital; Environmental Technologies Fund; HSBC Global Asset Management; Advance Emerging Capital; M&G; Invesco Perpetual;
 AXA Investment Managers; Hermes; Aberdeen. How many of these firms will survive through to Brunel?

Not only is Brunel getting its message out to asset managers, it is also engaging with beneficiaries at member funds. For example Brunel’s Dawn Turner and Matthew Trebilcock (ex-Cornwall) are presenting to the Devon Pension Fund next month.

Brunel is just one of the new pension pools in the UK and the new regime could change the face of institutional investment in the country. In going to the market with its expectations around ESG, long-termism and fees, Brunel is building a bridge to the future of asset management.