Brunel pension pool to review shareholders agreement with member funds

ESG-focused UK pool says it is “working with clients to address concerns”

Brunel Pensions Partnership, arguably the most ESG-orientated of the UK’s eight new local government pension pool operators, is set to undertake a formal governance review, including a look at the shareholder agreement with its member funds.

It comes as Bristol-based Brunel – which runs the £30bn (€34.9bn) pool for LGPS funds in the southwest of England – was granted a “significant” budget increase by its shareholders to alleviate “pressure on resources” that, according to one member fund, could have threatened its ability to meet regulatory requirements set by the UK’s Financial Conduct Authority.

“Brunel had identified areas of pressure on resources that unless addressed meant that the company would not be able to meet the regulatory requirements of being an FCA regulated body and launch the planned portfolios within a reasonable timeframe,” according to an update on pooling last month by the Devon Pension Board – one of Brunel’s 10 constituent pension fund shareholders.

The Devon update says the review would look at the documents that refer to the operations and agreements between the parties that form Brunel.

These include the Articles of Association, shareholders agreement and services agreement.

“The review will be based upon the feedback received from clients and will aim to ensure that Brunel operates in a way that is compliant with its obligations under company law and its regulatory obligations as an FCA authorised, full scope MiFID firm,” Devon said.

MiFID is the European Union’s Markets in Financial Instruments Directive which governs investment intermediaries and which was revised at the start of last year.

A spokesperson for Brunel, which formally launched in July 2017 and gained FCA authorisation the following March, said: “I can absolutely confirm that we are meeting FCA requirements currently.”

She added that: “Changes in regulation since we had completed the business case for pooling back in 2016 does require more resources internally.”

European legislation around MiFID II and GDPR [General Data Protection Regulation] were cited as examples, as well as “updates in FCA (and potentially the LGPS pooling) regulations due later in the year”.

When asked about the regulatory burden changes to MiFID II would put on the newly formed pools, a spokesperson for the FCA said, “not much of this would have a direct impact on these pooled structures” but he added that it would depend “on how they are structured”.

Both the £42bn ACCESS pool and the £15bn Wales Pension Partnership avoided the hurdle of FCA authorisation by appointing investment services provider Link Asset Services, part of Australia-listed Link Group, to establish and operate schemes on their behalf.The document from Devon also reveals that while Brunel’s shareholders unanimously agreed its 2019/20 business plan and revised budget – which will be used to “increase staffing, consultancy support, and IT system requirements – three “shareholder authorities” successfully opposed the pool’s other request for “greater flexibility to manage budgets across a three-year period”.

“We are working with our clients to address concerns” — Brunel

A spokesperson for Devon County Council told RI that it was not one of the three funds that opposed Brunel’s request and added that it expects “to transition its investment assets across to Brunel in line with the Government pooling guidance”.

This request was opposed, Brunel’s spokesperson said, due to its wording.

She added that: “We are working with our clients to address concerns. This matter does not limit Brunel’s ability to operate at this point in time.”

Brunel’s clients include LGPS funds in Cornwall, Buckinghamshire, Dorset, Wiltshire, Devon, Avon, Gloucestershire, Somerset, Oxfordshire as well as the Environment Agency Pension Fund.

The document reveals that Brunel is forecasting savings of up to £250m across the ten participating funds by 2036 — such savings were the government’s rationale for pooling in 2015.

Brunel has been an ESG proponent since inception, having outlined its ESG stance in a rare “reverse roadshow” for fund managers at the start of last year.

Last month, a consultation on draft statutory guidance on pooling was released by the UK Government’s Ministry of Housing, Communities and Local Government, with the Local Government Pension Scheme Advisory Board, a statutory body that oversees the LGPS funds, acting as secretariat.

That draft document states that the transition of assets from constituent pension funds to the pools “should take place over a relatively short period”, and adds that from 2020 “when new investment strategies are in place” that pool members should make new investments outside the pool only in “very limited circumstances”. The consultation ends on March 28.

Staying with the UK pensions market, London law firm Sackers last week published its third guide for trustees on ESG, designed to help them navigate legal developments such as the transposition of the revised European pension directive, Institutions for Occupational Retirement Provision (IORP II).