Rachel Elwell
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How to level up the UK, by the boss of Britain’s biggest pension fund
Rachel Elwell grew up with a love of numbers. The chief executive of Britain’s biggest pension fund explains that because both her parents were mathematics teachers, “we just talked about maths” when she was growing up in the West Yorkshire town of Pontefract.
“Like, when you walk up stairs, you count how many stairs you’re walking up,”
says Elwell, now 51.
It seems that talking about maths has continued since she had her own children. The boss of Border to Coast recalls how she would teach her two daughters:
“When the kids were having blueberries sitting on the high chair, I’d make patterns out of the blueberries and we’d count them as they ate them. I absolutely own that nerdiness.”
Elwell puts her mathematical mind to use when thinking about how to run the £120 billion of pension savings held by Border to Coast.
“It’s one of the reasons why I talk so many times about ‘systems’ — seeing those systems and understanding how to make the system work,”
she says.
In her description, her company is part of a “system” that she describes as a “flywheel”. Pension funds put momentum into the economy by channelling billions of pounds into local and global infrastructure projects, creating jobs and opportunities, and investing in start-ups that might one day float on the stock market.
Based in Leeds, Border to Coast is an amalgam of 18 local government pension schemes that, as its name suggests, stretches from Cumbria and Tyne and Wear in the north of England to West and East Sussex on the south coast.
Some key projects it has backed include £46 million towards a 200-room “aparthotel” in Leeds city centre on the site of a disused swimming pool, and £70 million for family homes in Cambridge.
It has been at the centre of the debate kick-started by Rachel Reeves on the role that pension funds can play in promoting economic growth. Even though Reeves was sacked last week by Andy Burnham, Elwell does not expect that to diminish; it may even be boosted, given the new prime minister’s focus on devolution.
Even so, she cautions that while Burnham celebrated the investment attracted into Greater Manchester during his time as mayor, it cannot be quickly replicated across the country.
“It’s taken decades to get the projects Andy can now talk about. I don’t think it will take decades [for other local authorities to reach that point], but we can’t expect every single bit of the country to be at the same level [of preparedness] as those who’ve been doing it for decades.”
There seems little doubt that Burnham will be the latest politician to try to get the pension system to work harder for Britain’s economy. The process started 11 years ago when George Osborne was chancellor; he called on the 90 or so local government pension schemes (LGPS) to combine their gigantic but fragmented £400 billion of resources into six mega “sovereign wealth funds” to boost investment in infrastructure projects.
This prompted the creation of Border to Coast, when 11 LGPS agreed to pool their investments. It expanded by another seven earlier this year following legislative changes pushed through by Reeves to accelerate the challenge laid down by Osborne.
“Future governments may well have further consolidation that they want to make but for now, the LGPS is in a place where it can concentrate on getting on with the things it needs to get on with,”
Elwell says.
Elwell reckons that Border to Coast is now at a “sweet spot” in terms of size.
“There is such a thing as being too big. You can become like a supertanker and you can’t make investment decisions without moving the market,” she says. “There’s a sweet spot, and the received wisdom is it’s around £150 billion.”
Although she is quietly spoken, Elwell has a voice on the world stage. In September, she will attend Canada’s first investment summit, convened by its prime minister (and former Bank of England governor) Mark Carney to seek investment in the country.
So how did she end up running the country’s biggest pension scheme?
“Growing up, I was a daddy’s girl,” she says. “I was three when I announced that I was going to [university] wherever my dad went. At that point, [Pembroke College, Cambridge] didn’t let women in. They didn’t let women in until I was 13.”
So, a few years later, she went there — to study maths with a diploma in statistics — after receiving careers advice from her local school in Pontefract to be a teacher, an engineer or an actuary.
My parents said: ‘You don’t have the patience to be a teacher, Rachel. Don’t do that,’ ” Elwell recalls. “And I’m not very practical, so engineering wasn’t really going to work.
“So I went off to do my maths degree and I wrote to a load of actuarial companies and said I don’t know what an actuary does, [but] will you give me a job?”
She moved to London in 1996 after the professional services giant PwC took her on and she spent 15 years there, including a six-month stint working in Russia on pension fund reform. She moved to the firm’s Manchester office while living in Hebden Bridge in West Yorkshire — she wanted to have her children in her home county
“just in case they were going to play for Yorkshire Cricket Club”
— but was told she would have to go back to London to be considered for a partnership.
“I really didn’t want to do that,”
Elwell says.
Instead, she stayed in Hebden Bridge after her Cheshire-based client, the investment and insurance company Royal London, offered her a job setting up its staff pension function and, later, its investment office there.
“The commute was around 90 minutes, but I was travelling all over the country,”
she recalls.
She had been there nearly seven years when the nascent Border to Coast came knocking with a role as chief executive that allowed her to be based in Leeds.
The city has become a growing financial services hub with outposts of the Bank of England, the Financial Conduct Authority and the National Wealth Fund. Somewhat awkwardly, the local authority retirement scheme for Leeds — the West Yorkshire Pension Fund — did not pick Border to Coast but its rival, Northern.
Pension schemes are being blamed for not backing Britain and the London Stock Exchange, where investment in shares by British pension funds has fallen from 50 per cent to about 4 per cent of their assets over the past 25 years.
Elwell rejects any idea that Border to Coast fits into this category. A third of its £120 billion is invested in Britain and about a third of that — or more than 10 per cent of the total — in London-listed shares. City figures are calling for pension funds to invest more in UK shares to protect the stock exchange from extinction as more companies are being taken private than are joining through initial public offerings (IPOs). Just last week, property giant Segro appeared to succumb to a £14 billion takeover by a US raider.
Many private sector pension schemes that offered an income based on earnings have now closed to new members and are risk-averse, parking their funds in government bonds to protect the savings of their retirees. By contrast, the LGPS are still open schemes.
“So they can continue to take the risk,”
Elwell says.
While the LGPS is an investor in London-listed shares, she points out that “a lot of” the income generated by companies listed in London is from “overseas”.
“We have been more focused on thinking about how do we support companies pre-IPO because — it’s the flywheel — if we can get that going then it will feed the stock market.”
Border to Coast is looking to put more investment into what Elwell calls “hyperlocal” projects. It is working on a pilot project in the northeast with three of the LGPS to
“direct their capital into real estate opportunities in that area”.
This was under way even before Burnham started to champion the devolution agenda; Border to Coast hopes to appoint a fund manager with a mandate to run the project “after the summer”.
“We’ve been working with Homes England as well as the mayoral authorities and the local authorities to look at what’s actually needed in that area … while very firmly having the financial return the partner funds need to pay their pensions,”
she says.
Reputational risk is also on Elwell’s mind.
“[This is] one of the areas that you have to be really thoughtful about when you’re investing as a domestic investor,”
she says.
“When you do these investments locally, it’s local people who see them and it’s the local politicians who get all of the heat if something goes wrong.
“So we have to be good at not just thinking about investment risk, but also how we are engaging stakeholders so that we’ve got their knowledge and understanding of what’s happening locally and we can work with them to manage that.”
She adds:
“This goes back to the ‘system’. The most important thing is that there’s confidence in the system, because if people stop being confident in pensions giving them a good income, then as a society we’re going to have all sorts of problems.”
The average member of a Border to Coast pension scheme is a woman, aged about 49, working part-time.
“The vast majority of people who work in local government are women — dinner ladies, librarians,” explains Elwell. “That woman who works part-time earning about £19,000 a year is earning a pension of £5,000 a year once she’s retired.
“That’s the difference between being on means-tested benefits and feeling like you have actively contributed and shaped your own retirement. For individuals, that’s really important, because there’s lots of evidence about the psychological impacts of being on means tested versus feeling like you’ve contributed to your own retirement.”
For the mathematician, the numbers need to add up.
