What will the Leave vote mean for Project Pool?
As the July 15 deadline for local government pension schemes to submit their asset pooling proposals approaches, experts have warned local schemes to expect delays to 'Project Pool' following the Brexit vote, but cautioned other obstacles might also arise.
Some in the sector said in the wake of a Brexit vote, the LGPS's Project Pool would move down the government and Treasury’s agendas.
Barry McKay, partner at consultancy Hymans Robertson, said: “We expect HMT will be very busy in the months to come as they work on the EU exit process. This may take some of their resources away from LGPS pooling and could result in a more flexible timetable.”
In contrast, a spokesperson from the government’s Department for Communities and Local Government said: “The administering authorities for the local government pension schemes have had nearly eight months to work on their pooling proposals. We have every confidence they will hit the deadline.”
Even if pooling becomes less important for the Treasury, most of the pools would still carry on with their plans
Bear fundamentals in mind
However, there are indications that government officials do not anticipate any such delays.
Jeff Houston, board secretary at the Local Government Association, said that based on his conversations with government representatives, the official view at the moment is there will not be any changes or delays to the LGPS timetable.
In November 2015, the government issued guidelines for LGPS investment reform. It is due to publish a revised version imminently. Houston said that “officials are [still] of a mind to get the rules out before the recess”.
Houston did concede that, for any new chancellor or prime minister, “[Project Pool] wouldn’t be at the top of their agenda of things to concentrate on” and that HM Treasury’s resources might indeed be diverted elsewhere. However, he pointed out that, in this case, the funds involved have their own resources to rely on.
He added that the best thing pension funds involved in pooling can do now is to continue to “invest for the long term”, and to bear in mind the fundamentals of their chosen asset classes.
Bigger fish to fry
Sam Gervaise-Jones, head of client consulting at bfinance, expects all schemes to meet the July 15 deadline, and anticipates no Brexit-related delays to the pooling timetable.
He did say that the Treasury might not immediately issue formal proposal approval or detailed feedback, but that provided the proposals raised no warning flags, schemes would be free to implement them with minimal Treasury oversight.
While recent market volatility is unlikely to change schemes’ proposals, it might “provide further impetus for more diversification” within their portfolios, he added.
Any new chancellor or prime minister “wouldn’t change direction on the [pooling] project”, said Gervaise-Jones, as it is not “high visibility for the public”, and would not raise any political objections.
“There are bigger fish to fry”, he remarked.
Gervaise-Jones said that, in its new LGPS rules, the government will seek to move away from “specific limitations” and towards more general guidance, although it might have to amend any EU-related advice it has already drafted, considering changing UK-EU relations.
In an environment where projects are competing for Treasury resources, Gervaise-Jones said, no project wants to become “a headache”, so schemes should “just get on with it”.
Removing the straitjacket
While it is likely that the Treasury’s attention will not be solely concentrated on the pooling project, this will not mean delays to the pooling timetable, says Joanne Holden, partner at consultancy Mercer.
“My gut feeling is that even if pooling becomes less important for the Treasury, most of the pools would still carry on [with their plans]," she said. “I can’t see [schemes] wanting to put things on hold”.
Even though support for pooling among the LGPS is not universal, she explained, most would still protest if the project was delayed or dropped, as pooling would bring noticeable financial benefits. As such, she could not see any new prime minister or chancellor revoking the project.
Holden added that post-referendum turmoil is unlikely to affect either the content or publication of the government’s new investment rules for the LGPS. These new regulations are largely about “removing the straitjacket” of Schedule One, she explained, which gave schemes explicit statements about which investments to avoid.
As the rules did not include much market-related guidance, whether the UK is or is not part of the EU will not alter the content much.
Above all for the schemes involved, she said: “It’s imperative to get your governance structures right”. The government will also want the pools to meet FCA regulations, which the proposals should take into account, she advised.