LP Profile: LGPS Central Limited

Click here for a full profile of LGPS Central Limited on Unquote Data, including comprehensive fund investing preferences and history

LGPS Central is one of the eight partnerships between 89 local government pension schemes (LGPS) in England and Wales that collectively invest in assets in a bid to take advantage of economies of scale. As a result, the pension pools can experience improved returns, reduced investments fees, and enhanced capacity to invest in alternatives.

"The firm is targeting to have around £40bn in assets under management (AUM) soon, as we transition more assets from our partner local authorities pension funds," says Omar Ghafur, LGPS Central Limited's investment director of private equity. "When LGPS Central Limited went live in April 2018, there was only £14bn in AUM, and we now have around £20bn."

LGPS Central Limited was founded to manage the pooled investment assets of LGPSs of Cheshire, Derbyshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Worcestershire, the West Midlands, and West Midlands Integrated Transport Authority (ITA).

"Our partner funds are taking advantage of the in-house private equity platform that we have set up for them, and the majority of them have already subscribed," says Ghafur.

Core strategy
LGPS Central Limited launched its first private equity fund in January, which is expected to deploy in excess of £2bn over the coming years. So far, five of the pension schemes participating in LGPS Central have backed the fund, including Cheshire Pension Fund, Leicestershire County Council Pension Fund, Nottinghamshire County Council, Staffordshire Pension Fund, and West Midlands Pension Fund.

LGPS Central Limited is set to launch a second fund later this year, where the focus would again be on developed markets. It is sector-agnostic when it comes to private equity investments, though it is eyeing defensive investments. "We are targeting companies that have strong growth records, are financially stable, and have recurring revenue streams in order to minimise the downside risk of the investments," adds Ghafur.

LGPS Central Limited is planning to set up and launch annual PE funds, where each fund would have different geographic, strategic and industry targets. The idea behind this is that the strategy would be set prior to the launch of these funds based on then-prevalent market conditions, in a bid to accommodate what is happening in the broader private equity market.

"Our plans for 2019 is to focus on primary funds and direct investments within private equity. The focus is on partnering with top-quality primary fund managers," Ghafur says. The partnership has guidelines to invest c40% directly and 60% via primary funds. Its ticket size is around £20-30m for private equity investments.

The LGPS Central Limited PE Fund has relationships with a number of household-name GPs, and it also has more than 80 GP relationships (across various geographies and strategies) via its Partner Fund PE portfolio - for which it is the mandated adviser. In terms of the geographical breakdown of the relationships, it is balanced between Europe and the US (while also having exposure to Asia and the rest of the world) with the US being more heavily weighted. "The US remains the largest private equity market in the world, so if you have a global strategy, it is very likely to end up being overweight in the US, because that is still the largest private equity market in the world," Ghafur says.

Brexit backdrop
With LGPS being based in the UK, the uncertainty over Brexit may appear as a challenge. However, Ghafur says the PE fund factors in Brexit as a backdrop, where LGPS Central Limited looks at the investments on the merits of the underlying company, and rate what the risks are to that company against the potential of a positive or negative Brexit outcome. "The approach should focus on measuring what the Brexit risks are to each investment directly, as opposed to holding a macro view, and underscore or miss out on opportunities because of the Brexit backdrop," he says.

The partnership is not planning to undertake investments in first-time funds in its private equity platform, due to the higher risk that they carry. "I would say LGPS investors across the board should also allocate to the top-quality managers with a proven track record of more than 10 years, in order to not take unnecessary risks with pension funds. We are not a wealthy endowment or high-risk hedge fund that likes to take additional risk by investing with first-time funds; it is a bit unnecessary in our opinion. Of course, people wouldn't agree with us, as a lot of people have higher risk tolerance and appetite, but LGPS Central Limited and myself don't feel comfortable in taking these risks," says Ghafur.

LGPS Central Limited has factored environmental, social and governance (ESG) criteria across all its investments. The organisation has an investment director for responsible investment and engagement, Michael Marshall, who reviews and provides his input as to the ESG element of the investments.

"We do take ESG into consideration, it is something that all the institutional investors globally should be embracing. Of course, we have a fiduciary responsibility to our investors, but we believe that the integration of responsible investment factors supports long-term risk-adjusted returns," Ghafur says.

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