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UK government proposes 'British wealth funds' as part of LGPS reform

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UK chancellor of the exchequer George Osborne has argued that “British wealth funds” could meet England and Wales’s infrastructure needs.

According to the finance minister, pooling the 89 local government pension schemes’ (LGPS) £193bn (€264bn) in assets would allow them to increase their exposure to domestic infrastructure.

Speaking at the Conservative party conference in Manchester, Osborne said the current system was expensive and that the LGPS at present invested “little or nothing in [UK] infrastructure”.

“So I can tell you today, we’re going to work with councils to create instead half a dozen British wealth funds spread across the country,” he said. 

“It will save hundreds of millions in costs, and, crucially, they’ll invest billions in the infrastructure of their regions.”

Osborne’s number of asset pools is in line with proposals published by the LGPS Advisory Board.

In documents prepared for a meeting in late September, the board suggested that funds could see assets split across seven pools – six for England and one for Wales – and that LGPS that currently employ in-house managers would not be exempted from mergers.

The document suggested the South East region of England – spanning from Norfolk Pension Fund in the north to the Hampshire Pension Fund in the west – would be the largest regional pool, capturing £37.8bn in assets.

The Midlands region, including Warwickshire, ranked second, with £35bn in assets, followed by the North East with £33.3bn, which would include the Northumberland County Council Pension Fund.

The North West asset pool proposed in the board documents would, at £31.2bn, also capture the assets from the Lancashire County Pension Fund’s partnership with the London Pensions Fund Authority, which chose not to be part of the London collective investment vehicle (CIV).

A statement by the UK Treasury said that the newly-pooled assets would “follow international norms” and grow their exposure to infrastructure, potentially through the pools building up internal capability to invest in the asset class.

The attempt to encourage a greater focus on infrastructure investment comes two years after investment regulations were amended, doubling the potential infrastructure exposure to 30%.

At the time, then-communities secretary Eric Pickles predicted the changes would allow the LGPS sector to “pump a further £22bn directly into job-creating infrastructure projects”.

Several local authorities have increased their infrastructure exposure in recent years, committing to a number of renewables funds and investing in an infrastructure fund managed by Hermes Investment Management that acquired stakes in Associated British Ports and Eurostar. 

The announcement comes alongside a promise from current communities secretary Greg Clark to amend regulations to prevent the politically motivated divestment of Israeli holdings and arms companies, seemingly in reaction to a campaign by union Unison calling for LGPS holdings with activities in the West Bank to be sold.

Scotland’s LGPS are exempted from the reform proposals, as it is a matter for the devolved Scottish administration. 

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