The UK government has published long-awaited guidance confirming the significant transfer of investment decision-making from Local Government Pension Scheme (LGPS) administering authorities to their asset pools, while stressing that funds will continue to retain responsibility for oversight and governance.
The guidance, issued by the Ministry of Housing, Communities and Local Government (MHCLG), provides further detail on how responsibilities will be divided between administering authorities and FCA-authorised LGPS pools as the government’s asset pooling reforms are implemented.
While administering authorities will continue to set their investment strategy and remain accountable for delivering members’ benefits, the guidance confirms that a broad range of investment implementation decisions will increasingly sit with the pools.
The document also makes clear that administering authorities are expected to maintain robust oversight of their pools. Funds should be able to monitor performance and hold pools to account, while recognising that day-to-day investment decisions are being delegated under the new governance framework.
The guidance seeks to clarify the balance between local accountability and centralised investment management as the government continues its drive to strengthen asset pooling across the LGPS.
Industry advisers welcomed the additional clarity but questioned whether administering authorities will have sufficient scope to challenge their pools given the scale of responsibilities being transferred.
Commenting on the guidance, Iain Campbell, head of LGPS investment at Hymans Robertson, said: “As was already known, the guidance confirms and provides further detail on the significant number of investment decisions being passed from funds to pools. It is pleasing to see the guidance acknowledge the need for funds to be able to challenge and oversee their pools.
“That said, it is strange to see government trying to limit this in places, given the vast influence pools will have on their investment outcomes. Funds will need a strong grasp on whether their pools are set up for, and delivering, success, to fulfil their fiduciary duties.”
Campbell’s comments highlight one of the key governance questions arising from the reforms. Although administering authorities retain fiduciary responsibility for scheme assets, the guidance envisages a model in which many investment decisions are taken by pools, requiring funds to exercise effective oversight without directing day-to-day investment activity.
The publication of the guidance marks another step in the government’s programme to consolidate LGPS investment management through regulated asset pools.
For administering authorities, the focus will now shift from managing individual investment mandates towards ensuring that pools are delivering against agreed objectives, operating effectively and providing the governance, transparency and accountability needed for funds to discharge their ongoing fiduciary responsibilities.
