Border to Coast Pensions Partnership Ltd...Manager appointments Q4 2019 Transition Transition of...
Transcript of Border to Coast Pensions Partnership Ltd...Manager appointments Q4 2019 Transition Transition of...
Border to Coast Pensions Partnership Ltd
Fixed Income Manager Day
17 June 2019
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Purpose of today
1. To update you on progress at Border to Coast
2. To outline the timing and details of our externally-managed fixed income Sub-Fund launches
3. To set out our approach to manager selection and what you should expect
4. To answer your questions
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Border to Coast Pensions Partnership
12 Likeminded Local Government Pension Funds c. £50bn Assets Under Management
Internal & External Management
Border to Coast: the story so far
Phase 4: transition of assets and running as
Business as Usual
Phase 3: transition to
permanent team and building
Border to Coast
Phase 2: Govt approval, funds’
commitment and building blocks established by project team
Phase 1: establishing pool
and guiding principles
Guiding principles
1. Meet Government aims (governance, RI, VFM and infrastructure)
2. One Fund, One Vote
3. Funds retain governance role and ownership of asset allocation
4. Generate improved net of fees risk adjusted performance
5. Internal management capability
6. Improved resilience and capacity over existing structures
7. Shared team in one location
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Jan 2015 – July 2016 July 2016 – Dec 2017 Dec 2017 – July 2018 July 2018 -
Border to Coast: Why Are We Here?
Making a difference to investment outcomes for Local Government Pension
Funds through pooling to create a stronger voice; working in partnership to
deliver cost effective, innovative, and responsible investment now and into the
future; thereby enabling great, sustainable performance.
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• a collegiate organisation: working together in an open and trustingenvironment with shared vision and goals to deliver long-term, strong and sustainable outcomes for customers;
• a sustainable organisation: investing in our colleagues by facilitating work-life balance; by encouraging personal and professional development; and supporting a creative, flexible and open to change culture that is equipped to evolve new capabilities as customer needs change;
• a transparent organisation: maintaining customer and public trust in Border to Coast’s integrity to enable us to deliver our objectives.
Customer owned,
Customer focussed
Collegiate
SustainableTransparent
Border to Coast: What Do We Want To Be?
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Border to Coast: progress 2018-19
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Border to Coast: Board
Chris Hitchen Enid Rowlands Tanya CastellChairman Non-Executive Director Non-Executive Director
Rachel Elwell Fiona Miller Cllr Sue Ellis Chief Executive Officer Chief Operating Officer Non-Executive Director
Border to Coast Pensions Partnership Ltd
Investment Team
Daniel Booth
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Investment Team structure: 2019 Plan
CIODaniel Booth
Fixed Income1 person (+2)
External Investment Capabilities
4 people
CEORachel Elwell
Investment Risk3
Equities8 (+1)
Alternatives3 (+3)
Research6 (+1)
Sub-Fund launches to date
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Emerging Market Equity
Fund
Overseas Developed
Fund
UK Listed Equity Alpha
Fund
UK Listed Equity Fund
Border to Coast - FCA Regulated ACS Structure
Size: £0.7bnLaunch: Oct 18
BM: S&P Emerging
Target: +1% pa
Size: £2.5bnLaunch: July 18
BM: Regional Comp
Target: +1% pa
Size: £1.2bnLaunch: Dec 18
BM: FTSE All Share
Target: +2% pa
Size: £3.9bnLaunch: July 18
BM: FTSE All Share
Target: +1% pa
Global Equity Alpha Fund
Size: c£4.5bnLaunch: Q4 19
(expected)
BM: MSCI ACWITarget: +2% pa
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Capability launch high level timetable
Launched in 2018 Scheduled for 2019 2020 onwards
Equities
Bonds
Alternatives
Property
UK Listed EquityOverseas DevelopedEmerging Equities
UK Listed Equity Alpha Global Equity Alpha Emerging Market, other
PE, infrastructure, private debt, diversified alts
UK investment grade, multi asset credit and other
Fund range TBA
Equities
Bonds
Alternatives
Property
Border to Coast Pensions Partnership Ltd
Externally Managed Funds
Graham Long
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Fixed Income Investment Team
Kevin PalmerPortfolio Manager – Fixed Income• Focus on direct fixed income investing• Previously Fixed Income Portfolio
Manager for South Yorkshire Pensions Authority and Nestle Pension Scheme.
Ryan Boothroyd CFAPortfolio Manager – External• Focus on external management• Previously Multi-Asset Portfolio Manager
at Janus Henderson and Investment Manager at Railpen.
Graham LongHead of External Capabilities
Anthony Petalas CFAPortfolio Manager
Jonathan SmartAssistant Portfolio Manager
Lead Portfolio Managers External Capabilities Team
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External Management Investment Philosophy
• Long term net of fees outperformance
• High return contribution from security selection
• Long term partnerships; success is not having to change managers
• Integration of Responsible Investment
• Blend that improves risk adjusted returns
• Restricted opportunity set – no consultant ‘buy’ lists
• Excess returns from beta factors (e.g. overweight non-investment grade in IG)
• Frequent (costly) manager changes
• Higher overall costs than before pooling
We want to achieve We want to avoid
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Responsible Investment
• Sustainability at core of our corporate and investment culture
• Effective stewardship leads to better returns
• Collaborative RI & voting policies to leverage scale
• Demonstrate ESG integration
• Ability to adhere to Border to Coast RI policies
• Active engagement
• Quarterly reporting on RI activities
• UK Stewardship Code, UN PRI or international equivalent
Why it matters to us We need from you
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Sterling Investment Grade Credit
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Starting AUM: £2-3bn
Strategies: 2-3
Benchmark: iBoxx GBP Non-Gilts Index
Performance Target: +60bps pa rolling 5 years (net)
Sterling Investment Grade Credit
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• 2-3 complementary investment grade credit managers.
• Low turnover, long-term approaches - conservative risk management.
• Focus on value-add from credit selection.
• Limits on non-IG and non-GBP issues.
• Do not wish to be constrained by the index:
o Credit indices are sub-optimally constructedo Will consider traditional active or buy and maintain styleso Looking for strategies aligned to long-term performance objectiveso Likely to set wide or absolute investment guidelines
What Are We Looking For?
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Minimum Criteria for Investment Grade RFP
1. Performance target consistent with long-term objective of index +60bps net
2. Strategy assets under management and capacity constraints consistent with expected mandate size
3. At least 5-years of realised track record
4. Fees relating to performance are unacceptable
5. Maximum fee of 25bps – overall outcome will be materially lower
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Indicative Timetable
Q2 2019 RFP launched RFP launched in June 2019
Q3 2019 RFP responses Responses to RFP within around 3 weeks of launch
Q3 2019 Pass / Fail Responses screened on pass / fail criteria
Q3 2019 Scoring Scoring by Border to Coast
Q3 2019 Complementarity Top 4-6 managers tested
Q3 2019 Manager Interviews Clarification of RFP responses
Q3 2019 Appointments Manager appointments
Q4 2019 Transition Transition of assets
Q4 2019 Fund launch Tentative Fund Launch Date
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Multi-Asset Credit
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• Broad exposure to a diversified array of credit risks
• Focus on sub-investment grade or structured credit
• Two key return drivers:
1. Security selection
2. Asset allocation
• Transparent and cost-effective implementation
• Allocations to high yield, EMD, leveraged loans and ABS
Our Approach to Multi-Asset Credit
Core MACManager
EMD Mandate(s)• Dedicated EMD Manager• Possible Internal Sleeve• Flexible Mandate• 10-25% Allocation
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Sub-Fund Structure
HY
LLEMD
ABS
Global High Yield Mandate• Dedicated HY Manager• Focus on Credit Selection• Global Coverage• 10-25% Allocation
Leveraged Loans Mandate• Dedicated Loans Manager• Focus on Credit Selection• Global Coverage• 5-15% Allocation
Securitised Credit Mandate• Dedicated ABS Manager• Flexible Mandate• Some IG permitted• 10-25% Allocation
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Return Drivers
Return Driver:Security Selection
Return Driver:Asset Allocation
Asset Allocation
• Most persistent source of excess return in credit markets.
• Individual allocations to complementary asset class specialistsmaximises potential for positive security selection.
• Allows greater depth in specific market niches than appointing asingle Multi-Asset Credit manager.
Security Selection
• Two areas of asset allocation – dynamic and strategic views.
• Core MAC manager provides shorter-term asset allocation viewswithin their portfolio. Specialists also provide bottom-up tilts.
• Partnership with MAC manager on asset allocation betweenspecialist buckets via joint asset allocation committee.
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Starting AUM: £2-3bn
Strategies: 5-6 (1 core plus specialists)
Primary Benchmark: SONIA
Performance Target: +3% to 4% pa rolling 5 year (net)
Comparator: Blended asset class benchmark
Sub-Fund Specification
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Multi-Asset CreditCore MAC Mandate
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• Deeply-resourced credit research capabilities across a broad spectrum of credit sub-categories. No heavy-bias to one core asset.
• Track record of generating outperformance through both security selection and assetallocation.
• Experience partnering with large institutions on asset allocation.
• Willingness to conduct ad-hoc analysis (e.g. portfolio risk modelling) as well as to provideoperational guidance on Sub-Fund structure.
• Transparent approach to MAC – no excessive complexity.
• Well developed, conservative approach to risk management.
What Are We Looking For?
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Minimum Criteria for Core MAC Manager
1. Performance target of at least SONIA + 3.0% pa net of fees (or equivalent)
2. Strategy assets under management and capacity constraints consistent with expected mandate size
3. At least 5-years of realised track record
4. Fees consistent with Partner Fund cost saving obligations
5. Fees relating to performance are unacceptable
6. Willingness to partner with Border to Coast on asset allocation and fund set-up
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Multi-Asset CreditSpecialist Mandates
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• Specialists in high yield, EMD, loans and securitised credit (final buckets may vary)
• Focus on value-add from credit selection and asset sourcing
• Diversified portfolios given asymmetry of potential return outcomes.
• Conservative approach to risk management.
• Low turnover and long-term focus.
• Not excessively benchmark aware given sub-optimal structure of credit indices.
• Multiple responses are acceptable (e.g. for multiple buckets).
What Are We Looking For?
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Minimum Criteria for Specialist Credit RFP
1. Active mandates looking to provide material excess returns over their specified reference index (i.e. no passive approaches).
2. Strategy assets under management and capacity constraints consistent with expected mandate size – may vary by bucket
3. At least 5-years of realised track record
4. Fees consistent with Partner Fund cost saving obligations
5. Fees relating to performance are unacceptable
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Indicative Timetable
Q3 2019 Core RFP launched RFP launched in Q3 2019
Q4 2019 Core Scoring Scoring by selection adviser and Border to Coast
Q4 2019 Core Manager Interviews Clarification of RFP responses
Q4 2019 Appointments Core MAC Manager appointed
Q4 2019 Investment Strategy Border to Coast and Core Manager finalise fund strategy
Q1 2020 Specialist RFP launched Specialist RFP released in Q1 2020
Q1 2020 Specialist Scoring Scoring by selection adviser and Border to Coast
Q1 2020 Specialist Manager Interviews Clarification of RFP responses
Q1 2020 Appointments Specialist Managers appointed
Q2 2020 Transition Transition H2 2020
Q2 2020 Fund launch Tentative Fund Launch Date H2 2020
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Selection Process
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What Does it Mean in Practice?
UK Investment Grade RFP:
Border to Coast selection process
• Indicative mandate sizes of £0.5bn – £1.0bn
• Blend of investment styles – not predetermined
Core Multi-Asset Credit RFP:
• Border to Coast led selection process with adviser support
• Indicative mandate sizes of £0.8bn - £1.2bn
• Single manager appointment with multiple credit strategy capabilities
Specialist Credit RFP:
• Border to Coast led selection process with adviser support
• Indicative mandate sizes of £0.2bn – £0.5bn
• Blend of investment styles – dependent on capabilities of core MAC manager
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Selection Process – Indicative Scoring Structure
• Transparent, open and fair• OJEU principles compliantKey steps:1. Technical/quality
assessing each manager
2. Value for money3. Complementarity
assessing manager combinations
4. Interviewsclarification of responses
Criteria used for Global Equity Weighting*
Minimum requirements Pass / fail
Technical Questions 50%
Price: Value for Money 20%
Fit / Complementarity 30%
Total 100%
Weightings for Fixed Income may differ: will be confirmed in RFP
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Hints and Tips for the RFP
DO - Stick to the word limit
DO - Address the questions asked
DO - Provide data in our specified format
DON’T - Assume knowledge of your firm or strategy
DON’T – Submit strategies that don’t meet the pass / fail criteria
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Q&A
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Disclaimer
The material in this presentation has been prepared by Border to Coast Pensions Partnership Limited (“Border to Coast”) and is current as at the date of this presentation. This information is given in summary form and does not purport to be complete. Information in this presentation, including any forecast financial information, should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments and does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to these matters, any relevant offer document and in particular, you should seek independent financial advice. All securities and financial product or instrument transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. This presentation may contain forward looking statements including statements regarding our intent, belief or current expectations with respect to Border to Coast’s businesses and operations, market conditions, results of operation and financial condition, capital adequacy, specific provisions and risk management practices. Readers are cautioned not to place undue reliance on these forward looking statements. Border to Coast does not undertake any obligation to publicly release the result of any revisions to these forward looking statements to reflect events or circumstances after the date hereof to reflect the occurrence of unanticipated events. While due care has been used in the preparation of any forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Border to Coast’s control. Past performance is not a reliable indication of future performance. The information in this presentation is provided “as is” and “as available” and is used at the recipients own risk. To the fullest extent available by law, Border to Coast accepts no liability (including tort, strict liability or otherwise) for any loss or damage arising from any use of, or reliance on, any information provided in this presentation howsoever caused.
This presentation is suitable for Professional customers only and may not be distributed without express permission of Border to Coast.Border to Coast is authorised and regulated by the Financial Conduct Authority whose address is 12 Endeavour Square London E20 1JN.Border to Coast is registered at 5th Floor Toronto Square Leeds LS1 2HJ.