After the UK government announced in last week’s UK budget that it was challenging the Local Government Pension Schemes (LGPS) in England and Wales to move further and faster on consolidating assets, the Pensions and Lifetime Savings Association (PLSA) has said it was too soon for another reform of the investment pooling system.
The budget stated that a forthcoming consultation would propose LGPS funds transfer all listed assets into their pools by March 2025.
“This may include moving towards a smaller number of pools in excess of £50bn to optimise benefits of scale,” the document stated.
“While pooling has delivered substantial benefits so far, progress needs to accelerate to deliver and the government stands ready to take further action if needed,” it added.
According to the budget, the government will also consult on requiring LGPS funds to consider investment opportunities in illiquid assets such as venture and growth capital, thereby seeking to unlock some of the £364bn of LGPS assets into long-term productive assets.
“Given that it is only five years since the first pooling reform which set up eight investment pools to serve the around 90 local authority pension funds in England and Wales, we think it may be a little early to undergo a further large-scale reform at this time,” Nigel Peaple, director of policy and advocacy at the PLSA, told IPE in a prepared statement.
“We look forward to participating in the review to assess the potential scale benefits that may come with this move,” Peaple added.
Iain Campbell, senior investment consultant at Hymans Robertson, said that the announcements in the budget indicating the government’s plans for the potential future path of pooling were significant, but require considerably more detail.
“The potential deadline for pooling of listed assets is a step-up in expectations from the government, but clarity is required on what investments this includes. Careful thought is also required around passive assets, as the potential for fee savings through pooling are severely limited,” Campbell noted.
“A smaller number of larger pools is again a significant development, requiring far more detail before any plans can start to be made. Meanwhile, the potential requirement for funds to invest in illiquid assets, such as venture and growth capital, brings about the well-debated challenges of implementing this within the fiduciary duty to pay pensions,” he continued.
Chris Rule, chief executive officer of Local Pensions Partnership Investments (LPPI), added: “Transitioning assets has long been a core tenet of the pooling initiative. Each pool is at a different stage of that journey, so there is so much potential to accelerate the transfer and concentration of assets to drive further cost savings, benefit from scaling up and collaborate between funds for the benefit of millions of pension members.”
Rule said that LPPI had always operated under a “fully pooled model” and this had paid dividends in terms of strong investment performance and significant cost savings. “This consultation is long overdue and we look forward to providing our views on any proposals put forward,” he said.
Wales Pension Partnership
The Wales Pension Partnership (WPP) told IPE is looking forward to responding to the pooling consultation when it is published.
“In the meantime, over the last four and a half years, the eight Welsh constituent authorities have transferred the majority of their listed assets (circa 85%) into the management of the WPP,” spokesperson said.
The WPP spokesperson also ntoted that the pool was launching an active sustainable equity sub-fund in May 2023 which will increase its pooled listed assets even further.
“Private credit, infrastructure and private equity allocators have been appointed by the pool with potential total assets under management of £1.2bn. Real estate assets will be the focus over the coming months,” the WPP spokesperson said, adding: “The WPP continues to deliver substantial benefits both in terms of cost savings and strong governance for all our stakeholders.”
Border to Coast declined to comment at this time, while the other five invetment pools – Access Pool, Brunel Pension Partnership, London Pensions Fund Authority, London CIV and LGPS Central – did not reply to IPE’s request for comment by press time.