UK local authority pension funds commit to social impact investments

Five of the largest UK local authority funds have committed £152m (€190m) to social impact investing after a year-long manager search.

The pension funds, which jointly have around £30bn in investible assets, joined forces in 2013 as a means to invest for both financial returns and positive economic impact.

The funds said the seed investments showed that social impact investing and financing local initiatives could align with a pension fund’s fiduciary duty.

Through the Local Authority Pension Fund Forum (LAPFF), the schemes founded their initiative from a white paper that identified challenges and opportunities in impact investing.

After 28 asset managers responded to a request for submissions, the funds have now allocated funds accordingly.

Greater Manchester Pension Fund committed one-third of the total allocation, half of which was placed in a property fund.

The other pension funds – West Midlands, East Riding, West Yorkshire, Merseyside and South Yorkshire – also committed to the property fund but in varying amounts.

All the investors, bar East Riding and West Midlands, also committed to an industrial lending fund.

Other areas of social impact investing include social impact bonds and social sector investments.

The funds’ joint group, Investing 4 Growth, said impact investing brought new risks that needed to be overcome, such as a lack of track record, liquidity, presence of other investors and inexperience.

Issues were also raised regarding a conflict between the pension funds’ investments, and the activities of their sponsoring local councils.

Councillor Kieran Quinn, who chairs Investors 4 Growth, said that while the process of setting up the investment group had been challenging, movement forward should demonstrate that fiduciary responsibility can be aligned with delivering positive outcomes for communities.

“Impact investing for pension funds is a new area of activity, and I hope that, having established the investment potential, other funds will join us in seeking further opportunities,” he said. 

He said that, even though the investments represented unfamiliar territory, and new asset managers brought their own risks, those risks could be mitigated to meet a fund’s expectations.

“As we gain experience and see successful opportunities mature, I am confident these factors can be effectively managed,” he said.