Merseyside puts ESG at heart of €1.6bn passive fixed income and equity manager search

Fund wants managers to monitor ESG risk and engage with companies

The £4.7bn (€5.6bn) Merseyside Pension Fund, the fifth largest fund in the UK’s Local Government Pension Scheme, has put responsible investing principles at the heart of a massive £1.34bn (€1.6bn) search for passive equity and fixed income managers.

The fund is seeking to appoint one or more managers for its £576m UK Index Linked Gilts fund, its £384m UK equity fund and its £384m US equity fund. It has appointed consulting firm Aon Hewitt to conduct the tender.

According to its most recent accounts, Merseyside had a Legal & General Pooled UK Index Linked Gilts fund worth 9.94% of its assets, Legal & General Pooled UK equities (10.26%) and a UBS USA Equity Tracker (7.53%).

The new mandates are all for four years, with the possibility of two-year extensions.
“The Fund is a signatory to the United Nations Principles for Responsible Investment (UNPRI) and, as such, wishes to see the Principles applied across the whole of its portfolio,” said Peter Wallach, head of the Merseyside Pension Fund.

Both UBS and Legal & General Investment Management are PRI signatories. LGIM, the largestsingle owner of UK equities, signed up to the PRI in September last year.

Wallach added: “Investing in equity indices effectively makes us universal owners, and it is our view that environment, social and governance (ESG) factors, over time, inevitably form part of the market beta of those indices.” He said the fund wants to work with passive managers who “can work with us to deliver best practice in responsible ownership”.
This would involve the managers monitoring ESG risk, engaging with companies and applying Merseyside’s voting policy.
The closing date for applicants is April 4. For further information, go to The Chest procurement website.

The fund had previously said in its revised Statement of Investment Principles that it would give preference to asset managers that are signatories to the new UK Stewardship Code and the UNPRI.
In January last year it put responsible investment criteria at the heart of £500m ($807m) in assets run in three mandates for Japanese, Pacific Basin and emerging markets equities that it was putting out to tender.