LPFA: Seize the opportunity
Talking Head: The coming weeks will see the annual decamp from Westminster as cities around the country play host to MPs, councillors, special advisers, journalists and those that have ideas or services to promote.
As an active local politician I used to attend party conferences every year and I’m back again this year in my capacity as the new London Pensions Fund Authority chair.
Together with our collaboration partners, Lancashire County Pension Fund and Greater Manchester Pension Fund, we will be hosting local government councillors to discuss what kind of role the Local Government Pension Scheme can play in delivering the infrastructure that England needs and how can we come together with a united voice.
If we can answer the second question, the first will fall into place.
Change is happening and we need to seize the opportunity and seize it together. Those that stand on the sidelines will deserve whatever is fast heading in their direction
Pooling investment from LGPS funds should be encouraged in order to provide the UK with much-needed infrastructure investment, at the same time improving performance and helping alleviate the deficits facing many public sector pension funds.
It could also allow joint vehicles to invest in projects from house and road building, to commercial and mixed use developments, or large scale regeneration projects where there is a visible social benefit in addition to the financial return.
It is only through pursuing intelligent working partnerships with funds of suitable profiles that we can build economies of scale, access different types of asset classes and undertake a greater amount of direct investment, thereby achieving cost reductions in administration and more effective liability management.
Fund performance
This is not all about cost reductions or efficiencies as some have claimed. Fund performance is of equal importance.
A fund can pay low fees but receive low returns, while its deficit grows inexorably. By focusing on pooling our strengths we don’t just save on fees, but get better deals and negotiate from a position of strength.
We estimate our partnership with Lancashire will achieve £30m savings in investment management fees alone over five years.
Taking into account improved investment performance that would come with economies of scale, we can achieve enhanced investment outcomes of £20m-£30m a year from current levels.
Combined with cost savings and the fact that we are just two medium-sized funds, the argument for change across the LGPS is undeniable.
However, the days of using party conferences as places for sterile debate about passive versus active or the merits of small over larger funds are over.
Government has made it clear that it is seeking change – substantial and at pace. No longer can we sit by and expect everything to remain the same; it will not.
Change is happening and we need to seize the opportunity and seize it together. Those that stand on the sidelines will deserve whatever is fast heading in their direction.
Sir Merrick Cockell is chair of the LPFA