UK considers new infrastructure vehicle as LGPS pool assets
The UK government has not ruled out launching a national infrastructure platform for local authority asset pools in England and Wales, despite the ongoing efforts of a number of schemes to develop real-asset vehicles.
Marcus Jones, minister for local government, said his Department for Communities and Local Government (DCLG) was committed to establishing a national infrastructure platform to serve local government pension schemes (LGPS), which are working on proposals to launch as many as eight asset pools.
Speaking at the Pensions and Lifetime Savings Association’s local authority conference, Jones said he was “absolutely happy” to develop “either a new or existing platform to meet the needs of the LGPS”.
Asked whether the government would consider using the existing infrastructure vehicles owned by UK pension funds – such as the £500m (€654m) joint venture between the Greater Manchester Pension Fund and the London Pensions Fund Authority (LPFA), or the Pensions Infrastructure Platform (PiP) – Jones said he was “well aware” there were a number of existing investment vehicles.
A single infrastructure vehicle was also proposed by Project Pool, a report submitted to the DCLG that saw responses from two dozen local authorities, while Greater Manchester suggested its joint venture with the LPFA could become a clearinghouse for infrastructure projects.
“We are looking at that very carefully in the context of what we’re trying to achieve,” Jones told delegates.
“But, at the moment, we are not ruling out looking at a completely new investment platform for all of the pools, as we are certainly as well not ruling out using, or adapting, one of the existing infrastructure platforms we have.”
Addressing concerns the government would encourage the sector to invest in domestic infrastructure, Jones said there was space for investments to take place overseas, as some markets had more advanced infrastructure markets from which the UK could learn.
His comments largely echoed the wording of a letter sent in late March to all English and Welsh LGPS in the wake of the first pooling consultation, which concluded in mid-February and asked for potential pools to outline how their collaboration could work.
In the letter, Jones emphasised that he would prefer funds to pool assets into vehicles registered with the Financial Conduct Authority (FCA), a point he reiterated in his speech at the conference.
“Looking back at the initial proposals submitted in February,” he told delegates at the PLSA event, “it will be no great surprise to any of you I have significant concerns about structures that are not FCA regulated, as appropriate for pooled investors – particularly in regards to tax treatment by other governments.”
Jones said the emerging pools also needed to be alive to the risk of “unwittingly” launching unauthorised collective investment funds, which he noted was a criminal offense.
The minister suggested he could not rule out future changes to accrual within the LGPS, only two years after the funds in England and Wales switched to a career-average system.
He also emphasised the importance of preserving the value for money of the LGPS for local taxpayers, later noting that, if the scheme were unable to stay within the budget negotiated in 2013 and no other savings measures were agreed, accrual changes would begin as a matter of default.
This contrasts with the previous government’s stance when reforms were announced, at which point assurances were made that the changes would be for at least 25 years.