Wandsworth Council’s £3 billion pension fund faces growing scrutiny after auditors warned of serious financial risks and persistent underperformance by fund managers — yet once again, the Council chose to exclude the public and press from part of the meeting where key investment issues were discussed.
At the 10 June 2025 meeting of the Joint Pensions Committee, external auditors Ernst & Young (EY) delivered a stark assessment of the fund’s financial health. The audit plan they presented identified multiple high-risk areas and made clear that some red flags had been raised before — but not acted upon.
“We’ve been saying this for a long time. The managers have not delivered,” one officer said bluntly, in reference to years of missed investment targets.
Warning Lights: Risk Everywhere
EY’s audit highlighted four key areas of concern:
- £436 million in “Level 3” assets, including private debt and infrastructure, were flagged as a “significant audit risk”. These investments are difficult to value and rely on internal models and fund manager estimates — creating both accuracy and manipulation risks.
- The rest of the portfolio isn’t much safer. EY noted that roughly 90% of the fund’s assets are classified as “Level 2”, meaning they are traded less frequently and, while technically easier to value, are still “inherently risky” due to the complexity and volume of holdings.
- Investment income was flagged under the standard audit category of “management override of controls” — a common fraud risk. But auditors applied new emphasis this year, noting that override risk was particularly relevant to how returns are booked near year-end.
- Finally, auditors warned about the complexity of IAS 26 disclosures, which are used to calculate the fund’s liabilities for annual financial reporting. Errors here could significantly distort how the fund appears in Wandsworth and Richmond’s accounts.
“Even a £30 million discrepancy — not fraud, just error — would be considered material,” EY noted, underlining the stakes.
Three-Year Underperformance — and No Clear Fix
Despite repeated warnings and strong returns in peer-group comparisons, Wandsworth’s pension fund has consistently underperformed its own strategic benchmark.
- Over the past three years, the fund has returned 4.4% annually.
- That falls well below the expected 6.1% benchmark, a 1.7% annual gap largely attributed to underperformance by specific fund managers.
- Baillie Gifford and RBC were named as two of the worst performers.
Officers confirmed that the fund’s underlying strategy remains sound, but that active managers simply failed to deliver. A review of whether to move to passive equity investments — which track the market at lower cost — is now under way, but no decisions were made at the meeting.
Public Shut Out — Again
Crucially, the committee also voted to exclude the public and press from part of the meeting — specifically Item 9, which covered the fund’s “responsible investment update” and included a presentation from the London Collective Investment Vehicle (CIV), which manages most of Wandsworth’s pooled assets.
The formal justification given was Section 100A(4) of the Local Government Act 1972, citing the need to protect “commercial confidentiality.” But this approach has drawn growing criticism.
At the last meeting in March, a similar exclusion was used — and it later emerged that during the private session, the committee had discussed moving funds out of the Nuveen UK Property Fund, which was being shut down after extended underperformance.
Despite its significance, no public admission of that decision was included in the meeting’s minutes or webcast.
Next Steps: Passive Review, Pooling Deadline
Officers confirmed that the Committee will revisit its approach to active vs passive investment later in the year, ahead of a major asset allocation review due in December. The urgency is growing: from March 2026, new rules may force Wandsworth to surrender more investment control to the London CIV.
And while the Council continues to maintain that the fund is “fully funded” and cashflow-positive, that status rests on complex assumptions, opaque valuations, and manager discretion — all areas now under forensic scrutiny from EY.
