LGPS could see infrastructure allocation boosted by 15%
UK – Local authority funds could soon see investment regulations loosened, allowing a further £20bn (€25bn) in assets to be allocated to infrastructure, according to the Department for Communities and Local Government (DCLG).
Today's consultation, affecting the £157bn in assets held by the 89 local government pension schemes (LGPS) in England and Wales, could result in the cap on limited partnership investments doubling to 30% of assets.
Alternatively, the DCLG has proposed the creation of a separate 15% allocation to infrastructure.
In its paper, the department noted that the increased limited partnership cap would be required in an effort to drive pension fund investment in infrastructure, as many funds were often structured as limited partnerships.
Referencing the National Association of Pension Funds (NAPF) and Pension Protection Fund's venture to launch an infrastructure platform for UK schemes, the DCLG said: "This means any investment in vehicles such as the Pension Infrastructure Platform must be taken together with existing investments in other limited partnerships.
"It has been suggested that, in view of this, the current 15% limit is too low and would put some local authority pension funds at risk of exceeding this limit, and so unable to pursue infrastructure opportunities."
Commenting on the consultation, secretary of state for local government Eric Pickles said: "By lifting the restrictions controlling local pension investments, councils could pump a further £22bn directly into job-creating infrastructure projects that will boost our economy."
Despite Pickles' call for local authorities to invest in infrastructure – including, according to the department's own statement, projects covering housing, roads and the long-debated second tranche of the UK high-speed rail network linking London, Birmingham and Manchester – the consultation stressed that the regulatory change did not mean the government was "endorsing any particular type of investment or investment vehicle".
"Those decisions remain properly as ones for individual local pension authorities, in the light of their own analysis, with final decisions resting with locally elected councillors," it said.
Employee lobby group CBI welcomed the government's move, arguing that unlocking fund investment was "critical" to improving UK infrastructure.
Rhian Kelly, the organisation's director for business environment, said: "Infrastructure projects should be a natural fit for these funds, which have very long time horizons and are looking for a healthy investment return.
"Lifting restrictions should allow them to take a more prominent role in deepening pension funds' involvement in infrastructure financing."
The NAPF had previously hinted at changes to investment guidelines. Speaking at the NAPF annual conference last month, chief executive Joanne Segars said conversations had been underway with the DCLG on addressing the 15% cap.
Discussing the organisation's attempts to attract local funds to the Pension Infrastructure Platform, she said at the time: "Part of the problem for local authorities – or part of the barriers for local authorities [to infrastructure investment] – has been these investment regulations. I very much hope we are close to seeing big change."
Any changes coming out of the consultation – which is set to close on 18 December – would only affect the LGPS in England and Wales.
Decisions regarding investment regulation for the Scottish part of the LGPS lie with the Scottish Public Pensions Agency.