Border to Coast has launched a £2.6bn multi-factor equity index fund – its first index strategy – which it says provides “significant cost savings” in fees, appointing BlackRock. The asset pool will retain control over decarbonisation metrics and exclusions among others.  

Launched in May with five of its 11 partner funds, Border to Coast said BlackRock is managing the proposition in conjunction with Stoxx as the index administrator. 

The fund was designed in close collaboration with the pension funds, the £52bn Local Government Pension Scheme pool added, and will seek to outperform the MSCI All Country World Index by at least 0.5% a year net over rolling five-year periods. The proposition will blend stocks and target five traditional fundamental factors – value, momentum, quality, low volatility, and size. 

Fee savings are expected to come from “the benefits of collective scale and strong strategic partnerships”, according to BtC.  

Cllr Ken Dawes, chair of the Tyne and Wear Pension Fund Committee, said the launch of the first index fund was a collaborative effort.   

“We are delighted with the appointment of an expert global asset manager, overseen by a diligent team retaining ultimate control of the index to ensure it aligns with our collective responsible investment policies. This is a cost-effective solution which complements our existing pooled equity funds,” Dawes said.  

Cost savings and the factor-based nature of the fund were important, suggested Jo Kempton, who is head of Lincolnshire Pension Fund: “This isn’t just passive exposure to an index, it brings the best of active management together with the cost-effectiveness of index investing to provide a sophisticated solution that we wouldn’t have necessarily had access to prior to our partnership."  

Border to Coast’s head of portfolio solutions, Graham Long, said the new vehicle complements the existing propositions “in a strategy with meaningful integration of responsible investment principles focused on managing risk and delivering long-term value”.  

The launch of an externally managed factor-tilted fund comes as central government requires pension funds to pool all of their assets by March next year. In March 2024, 45% of LGPS assets were pooled, and 27% was managed by the pools outside of pool investment vehicles, according to the response to the LGPS Fit for the Future consultation. For Border to Coast, these figures were at 58% and 13%, respectively. Taken together, this puts it in the middle of the pack, ahead of LGPS Central, Access and London CIV, and behind Local Pension Partnership, Norther LGPS – even though this pool has only 6% in actual pooled assets – Brunel, and Wales Pension Partnership.  

The government is also of the view that in-house management is preferable, to drive down costs, and that the number of sub-funds should be limited to avoid fragmentation that could undermine the benefits of scale. According to the government’s consultation response, BtC has 17 sub-funds – again roughly median among the eight LGPS pools.   

However, on its website, the pool currently lists 10 funds. They are for UK listed equity, UK listed equity alpha, sterling investment grade credit, sterling index-linked bonds, overseas developed market equity, multi-asset credit, global equity alpha, emerging markets equity alpha, emerging markets equity, and listed alternatives.