LGPS calls for details of government intervention

The proposals in the government’s 'Revoking and replacing the Local Government Pension Scheme (management and investment of funds) regulations 2009' consultation would give it powers to intervene in LGPS investments “if the secretary of state believes that [the administering authority] has not had regard to guidance and regulations”.

It would give some comfort, I believe, to authorities that any intervention would only be considered on a specific or fundamental issue that is very serious

Denise Le Gal, Surrey Pension Fund

Elsewhere in the document, the government singled out pension fund boycotts, divestments and sanctions against foreign nations and the UK defence industry as “inappropriate”.

Speaking at a conference run by Pensions Expert and FT Live, ‘Local Government Pension Schemes Leadership Briefing’, representatives of local authority schemes said the government should produce details on how the powers would work.

When the consultation was announced earlier this year, some in the industry said they could hamper the ability of schemes to invest quickly.

Denise Le Gal, chair of the Surrey Pension Fund, said: “We appreciate the need for the intervention to be broad… but that does present a problem if it’s too broad, which we think it is.”

She added: “It would give some comfort, I believe, to authorities that any intervention would only be considered on a specific or fundamental issue that is very serious.”

Le Gal said she disagreed that in the case of an intervention the cost should be borne by the local authority, as “if the secretary of state gets the revised investment strategy wrong that isn’t the fault of the administering authority”.

She said that “all in all we’re not happy with the powers”, adding that a robust set of criteria and guidance could achieve the same results.

Stick to the process

Julian Pendock, investment oversight director at the London Collective Investment Vehicle, a pool of 32 London pension funds, said he hoped the funds could avoid intervention through transparency and rigorous application of investment processes.

He said: “All we can do is take the view that we’ll do the best we can and stick to a process, be very transparent.”

“Part of this consultation is about informing the government,” he said, adding there would be “many many warning signs” before action was taken.

Paddy Dowdall, assistant executive director at the Greater Manchester Pension Fund, echoed this, saying due to the fund’s reputation and performance, “we don’t think there’s a risk people will take what we’re doing as outlandish”.

Edmund Truell, chair of the Strategic Investment Advisory Board set up the by Local Pensions Partnership, said the move could even provide comfort for schemes as long as they invested within a strategic framework.

“Effective government can create safe harbours, and so if you were, for example, to put half your assets into illiquid investment classes that’s OK… I think a lot of people want to be feeling they can be moving in the right directions safely and aren’t going to be criticised for selling their gilts and moving into infrastructure.”

Sorca Kelly-Scholte, EMEA head of pensions solutions and advisory for JP Morgan Asset Management, said there was nothing wrong with intervention in theory, provided the government’s “motive is aligned with the pension funds, and… fiduciary principle and desire to better fund members benefits is what’s motivating the intervention, and it is prudent and well-advised and guided by the right expertise, then by itself it shouldn’t be a cause for concern.”