Editorial:Asset pooling makes sense, but getting it to work can be a headache – that was the general consensus among Local Government Pension Scheme representatives at our LGPS Leadership Briefing this week.
Making cost savings and accessing niche asset classes are things every pension fund officer and committee member dreams of, but setting up a whole new infrastructure and deciding which authorised vehicle to use? Probably less so.
Illustration by Ben Jennings
The risks of pooling are significant, as Duncan Whitfield, president of the Association of Local Authority Treasurers, pointed out. The due diligence of moving large volumes of assets can’t be underestimated, he said. The pools simply have to function first time round. “We can’t afford for them to go wrong – they must work.”
Luckily, according to Jeff Houston, head of pensions at the Local Government Association, “a serious amount of common sense seems to have broken out at the FCA at the moment”. LGPS pools should take advantage of this when deciding on the practicalities of investments, he said.
The nascent pools are still wondering what proportion of their asset management they should outsource, while the asset management industry is bracing itself for the inevitable impact a future outflow of assets would have as in-house capabilities increase.
However, insourcing comes at a price, too – to get the right talent, local authorities will have to change the pay scales for investment managers if they are to compete with the City, Surrey Pension Fund chair Denise Le Gal said.
How schemes will oblige the government and increase their infrastructure investment also continues to be hotly debated. While pensions minister Ros Altmann pointed to a £70bn project pipeline, others might say that many of the projects on it – including Hinkley Point and Sellafield – are not investible for pension schemes.
It is becoming clear, however, that the pooling project has pushed LGPS funds to up their game once more in the investment space. Funds will have to learn to swim if they are to take full advantage of the opportunity.
Sandra Wolf is editor at Pensions Expert. You can follow her on Twitter@SandraCWKand the team @pensions_expert.
