On the go: Local Government Pension Scheme funds have been asked by the government to set out plans for investing up to 5 per cent of their assets in projects that support local areas, according to the new ‘Levelling up’ white paper.
Pension schemes have been viewed in the past few years as an answer to the UK’s investment in infrastructure and renewable energy. LGPS funds currently invest in UK and global infrastructure extensively through the eight LGPS asset pools.
Levelling up the UK is seen as a key policy area for the government, which noted that “large pools of underutilised capital across the UK that could, in principle, be used to support investment” in the paper, published on February 2.
In the document, the Department for Levelling Up, Housing and Communities cited the GLIL Infrastructure platform — run jointly by the Northern and Local Pensions Partnership Investments and LGPS asset pools — which has invested approximately £2.5bn.
Placing the spotlight on LGPS funds, which had a combined market value of £326bn as of March 2020, it observed that “only a few funds have so far invested with a local, place-based lens”. The government also said that current institutional investment has been “constrained by regulation”.
If all LGPS funds were to allocate 5 per cent of their investments to local projects, this would unlock £16bn in new investment, the DLUHC observed.
The government has made previous attempts to channel pension fund capital into growth areas for the UK. In 2020, the Department for Business, Energy and Industrial Strategy appealed for pension fund investment into a “clean growth” venture capital fund it had seeded with CCLA Investment Management.
After an announcement on the October 2021 Budget, the Department for Work and Pensions launched a consultation on removing performance fees from the charge cap for defined contribution schemes in order to encourage institutional investment, which closed in January. It reiterated this commitment in its Levelling up paper.
“Through the creation of new, long-term asset funds, schemes will be able to access investments that could improve returns net of costs and charges over the longer term,” said Callum Stewart, Hymans Robertson’s head of DC investment.
“Individual DC savers have been telling the industry that they want their money to have a positive impact on the world around us, and that illiquid investments are a way in which to do this.
“Although costs and charges are likely to be higher than most existing DC funds, we continue to believe that in this instance it’s possible to pay more and get more for DC savers.”
