Institutional Procurement and Value for Money: Evidence from Asset Pools

The first article in our institutional value-for-money series examines the concept of “super-procurement” capability within the institutional asset management market. Specifically, we explore whether superior fee outcomes achieved by Local Government Pension Scheme (LGPS) Pools are replicable across the broader investor landscape, or whether they reflect structural advantages unique to these investors.

Since 2022, ClearGlass has been engaged by several LGPS Pools to benchmark their procurement capability. The objective has been to evaluate whether the investment management fees negotiated by these pools are competitive relative to comparable mandates of similar scale and strategy across the institutional market.

Across four LGPS pools in the ClearGlass database (representing half of the historical eight pools), we identified material and consistent cost savings across all investment strategies. At the scheme level, three pools achieved fees that were, on average, 15 basis points (bps) below the benchmarked expected ongoing costs. In practical terms, these schemes were paying close to half of the anticipated fees for investment management services. Notably, one pool achieved an even greater reduction of approximately 30bps below expected levels, which is equivalent to less than one-third of benchmarked costs.

These savings are economically significant for the partner LGPS councils. ClearGlass estimates that these four pools have collectively saved approximately £200 million relative to the scenario in which individual councils procured investment management services independently at market rates. Importantly, these savings appear to exceed what would typically be attributed solely to economies of scale, suggesting that additional factors, such as procurement expertise, governance structure, and negotiation discipline, may play a critical role. 

LGPS vs Private Scheme Procurement

Analysis of negotiated fee rates for global active equity mandates shows that LGPS pools almost consistently secure lower fees than private corporate pension funds, even where investment mandates are of comparable size. In some cases, the same underlying funds are used by both LGPS and private schemes, yet the public sector pools still achieve lower fees. 

This evidence indicates that scale alone does not fully explain the superior outcomes; rather, it points to the existence of institutional “super-procurement” capability as a differentiating factor.

Figure 1: LGPS vs Private Scheme Procurement (Source: ClearGlass)

This figure shows the negotiated fee rate for global active equity mandates by LGPS pool (red) and private corporate pension funds (blue).

Further evidence from international markets reinforces this conclusion. In Sweden, FTN, the Swedish Fund Selection Agency, implemented a centralised procurement process that materially reduced fees across both active and passive equity strategies. Average active equity fees declined from 48bps to 21bps, while passive equity fees fell from 14bps to 5bps.

These outcomes demonstrate that structured procurement can deliver substantial fee reductions, even relative to already competitive institutional baselines. Notably, the Swedish active equity fees are, in some cases, lower than those achieved by LGPS pools. This suggests that there remains further headroom for fee reductions even within the UK system.

Figure 2: FTN Fee Reductions (Source: The Swedish Fund Selection Agency)

The implications of effective procurement are significant. In the Swedish example, the 27bps reduction in active equity fees translates directly into a 0.27% improvement in net investment performance. When compounded over long investment horizons, such improvements can materially enhance outcomes for pension beneficiaries. Over decades, even modest reductions in fees can translate into substantial increases in the total funding of an institutional scheme.

Can All Investors Replicate These Results?

The evidence suggests that “super-procurement” capability is driven by a combination of structural and behavioural factors, including:

• Centralised negotiation expertise

• Strong governance and accountability frameworks

• Access to transparent fee benchmarking and data access

• Competitive tendering processes

• Long-term strategic relationships with managers

• Willingness to challenge market norms

The key question is whether these outcomes are unique to large public schemes. In our view, they are largely replicable.

While not all investors can achieve identical pricing, most institutional investors - including private pension schemes, endowments, and smaller institutional investors - can materially improve outcomes by adopting a value-for-money framework, supported by robust benchmarking and more structured procurement processes. The potential benefits extend beyond fee savings alone, encompassing stronger governance, improved manager oversight, and better long-term investment outcomes.

Conclusion

Institutional super-procurement capability represents a powerful driver for enhancing net investment performance. The evidence from LGPS pools and international counterparts demonstrates that meaningful fee reductions are achievable, and that these savings can deliver substantial long-term benefits for beneficiaries. As the industry increasingly focuses on value-for-money, understanding the effectiveness of procurement should become an  important consideration for asset owners. 

Institutional investors should ask themselves three key questions:

• How did the LGPS pools and FTN negotiate better outcomes?

• Could these approaches be applicable to their schemes?

• Are their current investment mandates achieving good value-for-money?

The next part of our series on institutional value-for-money will examine the role of the asset manager, and what they understand about the market positioning and pricing.