Venture capitalist Edi Truell is injecting private equity thinking to the public sector. Michael Bow hears why.
THE HIGH-OCTANE arena of venture capital is not a natural fit for the sedate world of town hall pensions. But just tell that to Edi Truell, the venture capitalist tasked with shaking up London’s £4.6bn public sector pension scheme.
Truell, who has worked in private equity for more than two decades, is the poacher turned gamekeeper hoping to inject a private sector ethos into bloated public sector pensions.
Made chair of the London Pension Funds Authority (LPFA) by Boris Johnson last year to add oomph to the organisation, he has since brought in seasoned infrastructure professionals to the board and set about reshaping it into a private sector, City outfit.
“We want to make money for the pro bono publico but do so in an absolutely private sector, almost private equity, manner,” he says, reclining in a Chesterfield chair in his small office off Cannon Street. “We’re not cuddly. Just because this is public sector doesn’t mean you have to be inefficient.”
With about 700 quango pension schemes and 89 council schemes in the UK – each with their own set of fund managers and consultants – some argue public sector pensions are anathema to the brutal cost discipline of private equity operations.
Truell and LPFA interim chief executive Susan Martin are now leading ambitious calls to change this and corral these funds into a handful of so-called superpools worth hundreds of billions of pounds to compete with giant pension funds globally.
“What’s frustrating to us is the inefficiency of these myriad of schemes,” he says, leaning forward. “One of the international lessons is that you get considerable cost savings by eliminating the duplication of actuarial consultancy. You get better investment performance by dis-intermediating them. Which is a nice way of saying you don’t need the consultants anymore.” Do you need all the trustees, those locally elected councillors calling the shots on where to invest the money?
“It’s odd that billions and billions of pounds of public money, the money that is ultimately going to pay not very well-off pensioners, is being shepherded and stewarded by enthusiastic amateurs,” he says. “In every other walk of life you have to be qualified before you can be let loose – it’s a bit like me saying I want to fly a jumbo jet.”
Underfunding is a perennial problem for public sector pension schemes. Truell cites one scheme with only £14 of assets for every £100 of liabilities, a funding ratio that in the private sector would land it into the Pension Protection Fund for bankrupt pension plans.
Despite the desire to inject animal spirits into public sector schemes, one key difference is that schemes can always fall back to the taxpayer to fill deficits. Not surprisingly, Truell wants to change this and give government greater control if schemes fail.
“There’s a very interesting political question, if central government explicitly guarantees something then it would seem to me that in exchange you’d have the ability to dictate how that guarantee is managed. If they are standing behind a billion pounds of pension liabilities they should say, sorry guys you’re going to be managed by the public protection fund, that’s the quid pro quo.” Truell may not be flying jumbo jets but there’s no doubting the scale of his ambition.
PROFILE: EDMUND “EDI” TRUELL
EDMUND Truell, or Edi as he is known, is a seasoned corporate financier who has worked in the cut-throat world of banking, private equity and debt investment for nearly 30 years.
He started out his career on Wall Street, training at the Bankers Trust Co in New York before becoming an associate.
He left the bank to join Hambros Bank in 1991 before moving up to head its venture capital operations as chief executive of Hambros European Ventures in 1994.
Four years later he led a management buyout of the group, turning it into Duke Street Capital, a private equity vehicle that went on to own businesses like Wagamama restaurant and Getty Images.
In 2000 he moved into debt management with the launch of DSC Debt Management.
Timing his exit from private equity just right, he left the business just before the 2007 financial crash and made his first foray into pensions, setting up Pensions Insurance Corporation.
His brother is Danny Truell, chief investment officer of the Wellcome Trust and former managing director at Goldman Sachs, who currently sits on the board of Pension Insurance Corporation.
Edi Truell’s latest venture is Tungsten, which also has Danny Truell on the board alongside other City heavyweights like Icap boss Michael Spencer.
Tungsten is set to float on the stock market in London later this year and is designed to speed up electronic invoicing.
Outside of business Edi Truell is a trustee of the Galapagos Conservation Trust.