UK – Investment guidelines governing local authority funds in England and Wales should be brought in line with the private sector’s approach to investing, the chief executive of the London Pensions Fund Authority (LPFA) has said.

Mike Taylor, head of the £4.7bn (€5.5bn) scheme, said the responsible government ministry – the Department for Communities and Local Government (DCLG) – was unable to keep up with changes to the investment landscape and that an amended framework should therefore mirror the regulation of private sector occupational funds closely.

Taylor was speaking with IPE after DCLG minister Brandon Lewis promised a review of investment guidelines alongside a review of the current structure of England and Wales’s 89 local authority pension schemes (LGPS) – a consultation that could potentially lead to mergers within the sector.

Taylor said the LPFA backed regulation that was “linked much more closely to the private sector”, while allowing for any necessary tweaks to meet LGPS standards.

“Quite frankly,” he said, “DCLG are not sufficiently expert to keep up with what’s going on in investment matters.

“It would make more sense if they accepted what the private sector experts are doing in this area and made the limited number of tweaks needed to make it applicable to the LGPS.”

The London Borough of Camden recently took a consultation on investment thresholds for limited partnerships – designed to allow greater exposure to infrastructure – to call for an end to “prescriptive” investment guidelines.

Taylor added of potential mergers within the system: “My personal preference is for larger schemes, so that the bigger LGPS schemes would be as big BT and USS [the Universities Superannuation Scheme].”

Telecoms giant BT and USS are the largest and second-largest UK pension funds, respectively.

BT had assets under management of £41.5bn at the end of its financial year, while USS manages assets of £32bn.

However, the creation of such large funds does not have universal backing within the LGPS.

Mike Jensen, CIO at the £5.1bn Lancashire County Council pension fund, said he viewed a threshold of about £2.5bn-3bn as the point where investment fees would not be significantly lower if a greater volume of assets were available.

“Frankly, there is an awful lot of rubbish talked about scale,” he said.

“The expectation that a jumbo fund for whatever it would be for the LGPS would elicit a huge savings in fees is very optimistic.

“It would also put huge capacity risk into the investment portfolio structures, so the upside and downside of that is far from clear.”

Jensen did say that while he had no view one way or another about consolidation within the London council schemes, it was a place where “investigation should be undertaken”, given that many of the 34 funds within the capital were under £700m.