Pension funds look for allies on RI mandates

Global pension funds are increasingly seeking alliances to pool money into responsible investment mandates or work together on integrating best environmental, social and governance practices into their investment.
They say the moves aim to quicken the slow pace of relevant product development by asset managers, blocked in part by the reticence of investors to commit themselves to new investments on their own.
In the US, the $45bn (€33bn) New York City Employees Retirement Scheme (NYCERS), has called for funds to contribute to a mandate pot, which could be used to influence fund managers in asset classes such as private equity where responsible investment criteria has been slow to develop. Speaking at a recent conference in Denmark, Michael Musuraca, designated trustee at the fund for the American Federation of State, County, and Municipal Employees (AFSCME), AFL–CIO, District Council 37, the largest public sector union in New York City, said: “We as pension funds should be doing more to collaborate on SRI mandates to encourage the asset management community to develop products. For example, funds could get together and put 25 basis points of their assets into a pot and push private equity houses to come up with something interesting. We’d liketo see pension funds doing more of this.” Musuraca said collaboration could also help funds negotiate better fee structures: “I don’t think it’s written in stone that pension funds should pay two and twenty (2% fee plus a 20% cut on returns) fees to private equity managers. I’d also like to be able to go to other funds such as the Norwegian Government Pension Fund and create joint emerging markets mandates where we could ensure ESG issues are placed to the fore.”
On the same panel, Nada Villermain-Lécolier, investment director at the €34bn ($54bn) French Pensions Reserve Fund (FRR) said its statutes allowed the fund to collaborate with other funds on investment proposals and said she thought the idea made sense.
In the UK, the London Pensions Fund Authority has revealed it is examining a potential tie on ESG projects with the University Superannuation Scheme (USS). Speaking at the UK National Association of Pension Funds Local Authority Pensions conference in London, Mike Taylor, chief executive of the LPFA, said discussions were ongoing. Taylor also said the fund was close to hiring fund managers for both a responsible investment mandate and a segregated long-term investment mandate, which he said would be set clear
performance targets. He said the LPFA would no longer hire fund managers that failed to comply with certain criteria on ethical, social and governance issues including the UN Principles for Responsible Investment. The LPFA has been one of the most prominent UK proponents of ESG investing among pension fundsIt has drawn up a self-assessment template, which it says it will share with other schemes interested in responsible investment. The United Nations Principles for Responsible Investment is understood to be working on such investor collaborations for smaller pension funds that want to pool resources for ESG investment.