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Scottish LGPS should award 'degree of priority' to infrastructure

Scotland’s local authority funds should prioritise investments in regional infrastructure projects, including housing, according to a committee of Scottish parliamentarians.

In a sign that local government pension schemes (LGPS) are coming under pressure to invest in infrastructure in all parts of the UK, the Scottish Parliament’s local government and regeneration committee said it was urging schemes to consider increasing exposure to the asset class if they had not already done so.

It argued that a number of pension funds had been able to “reconcile” the risk associated with infrastructure investments – locally and nationally – with positive social or economic impact, as the assets were “less volatile” than other investments.

“We, therefore, advocate those [LGPS] in Scotland, which haven’t yet considered these types of investment, to challenge themselves to do likewise and give a degree of priority to investing members’ funds more locally and building in elements of public good,” it said. 

As an example of such a project, MSPs cited the Greater Manchester Pension Fund’s decision to contribute towards the construction of social housing on local authority land.

Lothian Pension Fund, responsible for the retirement assets of local authority workers in Edinburgh, has previously questioned exposure to social housing over the associated reputational risks

The committee came out against the UK government’s proposals to force LGPS assets across England and Wales into as many as six asset pools, which UK chancellor of the Exchequer has previously argued would see increased exposure to infrastructure.

In the report, MSPs said they agreed infrastructure investment was “vital” for a successful economy but that the committee was “less attracted” to the formal pooling arrangements.

It added that informal collaboration seemed the favoured method “because there was a willingness to work together for a shared vision and benefit”.

The report also encouraged funds to seek out collaborative efforts to reduce costs.

It said proactive collaboration was of “particular importance” in light of the potential for the Scottish government to follow London’s example in scrapping investment regulations in place for the LGPS.

MSPs also argued that the Scottish LGPS Scheme Advisory Board should offer a forum to “form working collaborations” for those interested in jointly investing in infrastructure. 

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