The Central asset pool that eight UK local government pension schemes (LGPS) are forming has a long-term aim to offer investment-management services to third-party investors, such as charities.
Creating a “regional centre of excellence for investments management, able (in the long term) to offer services to other pension funds, charities and endowments” is one of the pool’s seven stated objectives.
However, Colin Pratt, investment manager at Leicestershire County Council, the administering authority for the Leicestershire Pension Fund, emphasised that this was not a priority for the pool but rather a potential long-term development.
“The pool will start with an internal investment-management resource, and there is no doubt that, for a minimum of the first five years, the pool’s ambition is purely and simply to manage the assets belonging to the pool participants and nothing over and beyond that,” he said.
“If in the fullness of time that resource has spare capacity and is performing well, then there is a possibility it will be made available for other investors. It is something to strive for in the long term.”
The eight* participating LGPS will be pooling £32.6bn (€38.5bn) of assets, some 41% of which is – as at the end of March 2021 – expected to be held outside of the Authorised Contractual Scheme (ACS), the collective investment vehicle that will be set up to hold the pension funds’ listed equity and bond holdings.
The pool is still deciding on the mechanism by which it will provide funds with access to alternative asset classes, some of which could end up also being managed within the ACS if this is possible.
More direct property
The assets that are not in the ACS, but could end up in there, include indirect property investments, which the pool aims to scale back over time to grow direct property assets.
As a pool, LGPS Central has some £2bn of property holdings, including direct and pooled funds.
The switch to direct from indirect will be achieved partly as a result of closed-end funds held by a number of the pool members coming to the natural end of their lifetime, with the money returned to be invested into direct property.
Pratt said: “It’s more likely to be a natural wastage-type development and taking advantage of market liquidity as and when that exists within open-ended pooled property funds.”
The switch from indirect to direct property investment is expected to contribute to cost savings, which have been estimated to reach £29m per annum as at 31 March 2033, 15 years after the date the pool goes live, in April 2018.
As concerns infrastructure, the pool has a target asset allocation of 3.8% as at 31 December 2015, but is aiming to grow this to at least 5%, “but up to 6% or 7% estimated”, depending on each of the participating pension fund’s investment strategy.
This is according to the pool’s recent submission to the UK government, which states that a number of the participating funds already have plans to review and increase their allocations.
“Two Funds have no current allocation but are starting to assess the potential strategic value of the asset class,” it said.
“The target allocation is based on data gathered from each Fund regarding their potential appetite for infrastructure.”
*Pension schemes for Cheshire, Derbyshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, West Midlands Pension Fund (including West Midlands Integrated Transport Authority) and Worcestershire