On the go: The government needs to provide a clearer definition of the kind of infrastructure investment it wants public sector schemes to carry out as part of its levelling up agenda, the chair of the Local Government Pension Scheme advisory board has said.
Speaking at the Pensions and Lifetime Savings Association’s local authority conference on June 14, councillor Roger Phillips accepted, in principle, the government’s desire for LGPS funds to allocate up to 5 per cent of their assets towards domestic initiatives.
“None of us have got a problem with investing in the UK in infrastructure investment, providing of course we recognise that we are a pension [scheme], we’re not some grant giver. We need to have a return,” he said.
The policy has attracted criticism from some LGPS funds. The £1.9bn London Borough of Lambeth Pension Fund told Pensions Expert in February that imposing a top-down target on schemes risked “creating a conflict between arbitrary local investment targets and our overriding fiduciary responsibility”.
Phillips said that it needed to be made clear “what is the definition of that, and are we properly capturing it? And indeed, how much UK investment [in] infrastructure are we already delivering?”
The 2021 annual report for the LGPS, published on June 14, revealed that infrastructure investments made up 14.7 per cent of the scheme’s investment to “other” assets, which itself represented 9 per cent of the overall portfolio.
Pooled investment funds accounted for the lion’s share of the scheme’s assets, representing two-thirds of its portfolio. Pooled investments have surged within the past decade, having made up 40 per cent of the portfolio in 2014.
The scheme’s investments rose by 24 per cent to £342bn over the period. The net return sat at 20.56 per cent, compared with a UK equities benchmark return of 30 per cent.
The scheme’s management charges increased by 12.9 per cent to £1.5bn, almost all of which was made up of a £193mn surge in these fees.
“I would like to see us take a… stronger line in infrastructure, because as we’re maturing we may need a different type of investment as well,” Phillips said.
“We’re not punching our weight when it comes to infrastructure. We let others do it to us when we should be doing it to them.”
