It's our belief that LPPI’s pooling model supports the original imperatives of LGPS investment pooling and brings disproportionate benefits to our partner funds:
- Infrastructure is a core part of our clients’ investment strategies, with current target strategic allocations of 12-15%. This is supported by a dedicated in-house team of 13 infrastructure investment professionals.
- We deliver market-leading fee savings. This is demonstrated by the disproportionate impact LPPI has had and continues to have on total LGPS net cost savings.
Since the implementation of pooling the LGPS has achieved net savings of £380m. LPPI’s net savings from pooling as of March 2022 is £113m, equivalent to 30% of the total LGPS figure despite our share of total LGPS pooled assets AUM being 6%.
Similarly, the consultation sets out annual savings for the LGPS as £180m (presumably to March 2022). LPPI reported annual savings of £39.1m for that same period representing approximately 22% of the total savings figure quoted. Again, a much higher contribution to savings than LPPI’s share of total LGPS pooled assets AUM.
Importantly, our model ensures that funds retain their sovereignty to drive strategic allocation which we can efficiently and effectively implement with a track record of strong performance and value for money.
We also innovate by creating products tailored to work for LGPS funds that most effectively implement the strategy set by our partner funds and we look forward to the next stage of pooling which we hope this consultation will help to deliver.
LPPI’s full response to the consultation is available here.
Below are the summary highlights of our response to the consultation:
Chapter 2: Asset pooling in the LGPS
Question 1: Do you consider that there are alternative approaches, opportunities or barriers within LGPS administering authorities’ or investment pools’ structures that should be considered to support the delivery of excellent value for money and outstanding net performance?
- We fully endorse the proposal to streamline governance structures within LGPS funds. Consolidating funds under fewer administering authorities would achieve greater scale benefits, which could further improve investment outcomes.
Question 2: Do you agree with the proposal to set a deadline in guidance requiring administering authorities to transition listed assets to their LGPS pool by March 2025?
- We agree that setting a deadline to pool liquid assets is necessary to prevent inertia and we do not see material barriers to the proposed March 2025 date. Further deadlines for illiquid assets should be set and the definition of “pooled” should include assets managed under the discretion of the pool.
Question 3: Should government revise guidance so as to set out fully how funds and pools should interact, and promote a model of pooling which includes the characteristics described above?
- We advocate for updated government guidance on pooling models and recommend regulatory-driven definitions to encourage the proposed pooling model. Pools and partner funds should work collaboratively when designing fund investment strategies and asset allocations.
- Strategic Asset Allocation should be defined to be across a small number of broad asset class definitions. Pools should be encouraged to collaborate and invest in one another’s capabilities. Where this does not happen partner funds should be free to invest directly in any pool’s investment vehicle.
Question 4: Should guidance include a requirement for administering authorities to have a training policy for pensions committee members and to report against the policy?
- We strongly concur with introducing a mandatory training policy for pension committee members, a stance supported by the consultation's call for training requirements. A tiered approach would be beneficial, covering both foundational topics and providing advanced modules for further specialisation. Training should be accompanied by assessment to demonstrate understanding. Such an approach would help maximise appropriate delegation to the pool and improve overall governance.
Question 5: Do you agree with the proposals regarding reporting? Should there be an additional requirement for funds to report net returns for each asset class against a consistent benchmark, and if so, how should this requirement operate?
- We welcome enhanced reporting and the establishment of uniform benchmarks, as encouraged in the consultation. However, we suggest that performance evaluations be aligned more closely with Strategic Asset Allocation benchmarks, providing a nuanced and more accurate gauge of investment strategy effectiveness.
Chapter 3: LGPS Investments and levelling up
Question 7: Do you agree with the proposed definition of levelling up investments?
- We have no strong concerns with the consultation's definition of levelling up. However, we argue that classifying these as a separate asset class could introduce unnecessary complexities. Our partner funds already invest in assets that would meet the proposed definition, suggesting that additional classification layers may not be beneficial.
Question 8: Do you agree that funds should be able to invest through their own pool in another pool’s investment vehicle?
- Aligned with the key point advocating cross-pool collaboration, we are entirely supportive of enabling funds to invest through their pool in another pool’s investment vehicle. We also propose that direct investments into other pools should be permissible. This would remove the need for feeder funds and the associated costs.
Question 9: Do you agree with the proposed requirements for the levelling up plan to be published by funds?
- We acknowledge government interest in setting benchmarks like the proposed 5% for Levelling Up assets. However, mandating such a figure may conflict with LGPS fiduciary duties and must be treated with extreme caution. We believe the proposals will have limited impact as Funds who wish to make such investments are already doing so. Those that do not wish to, should not be mandated to do so.
Question 11: Do you agree that funds should have an ambition to invest 10% of their funds into private equity as part of a diversified but ambitious investment portfolio? Are there barriers to investment in growth equity and venture capital for the LGPS which could be removed?
- We interpret the consultation’s ambition for allocations to PE as a desire to see LGPS funds continue to invest for growth and prevent “de-risking”. To accomplish this responsibly, government should focus on creating optimal conditions for increased risk-taking. We recommend government consults on aligning valuation requirements with the longer-term investment horizon often needed for these asset classes.
Download the consultation response here.
To discuss the consultation response, please contact us here.