LGPS – Feature


LGPS POOLING: STRONGER TOGETHER It


is five years since the then chancellor George Osborne announced that


the assets of local government pension


schemes (LGPS) were to merge and three years since this pool- ing came into effect. How has this overhaul developed? A good starting point for making an assessment is by comparing the original rationale for the LGPS pooling approach. Here Osborne was motivated by two factors: The first was that small local pension funds lacked “the expertise to invest in infrastructure”. Here he cited that across £180bn of assets, only 0.5% has been put to work in such projects. Second, Osborne said pooling the 89 local authority pension funds into eight wealth funds would “reduce costs, saving the beneficiaries of the schemes millions of pounds every year” – has this been borne out? portfolio institutional spoke to three of the key pension pool players to get the inside track on how Osborne’s pensions rev- olution is shaping up.


CASE STUDY ONE The LGPS Central experience


Looking at the first of Osborne’s assertions: that small local pension funds lacked “the expertise to invest in infrastructure” – has this changed with the merging of LGPS assets? “Yes,” replies Mike Weston, chief executive of LGPS Central, unequivocally. “The pools I have knowledge of, including our- selves, have all pushed forward with infrastructure investing and have begun to increase the overall percentage of LGPS assets invested in infrastructure.” LGPS Central’s commitment here


is evident through a


dedicated in-house infrastructure and property team, part of the broader private markets team. “This team has a collective 38 years of infrastructure investing experience and, as a resource, is larger than any of our individual partner funds had themselves before pooling,” Weston says.


The team launched an open-ended infrastructure fund – which several partner funds have already invested in. And the proof of a successful fund is, of course, in its performance.


What about Osborne’s reduction in costs – has this happened? Yes again, says Weston. He cites strong data in support: The Ministry of Housing, Communities and Local Government annual statistics from all the pools, including cost savings and highlighted, overall gross cost savings from pooling amounted to £300m to date. To back this up, Weston gives his own numbers: “At LGPS Cen- tral we have delivered gross savings for each of the pooled active investment products we have launched since our estab- lishment. We are confident that we are on track to achieve £270m net cost savings by 2033/34.”


Challenges since inception


During the evolution of the whole process there have, never- theless been challenges. “All our partner funds have the same aim of providing returns to their scheme members, but they are still individual funds, which have different asset allocation strategies and liabilities,” Weston says. “And so we have to work with partner funds to create products that they are all willing to invest in.”


And putting one key challenge in perspective, Weston notes: “Starting a company from scratch is no small challenge. We have had to build our team, build our processes and embed the right values in the right way. We have achieved much in a short time – the challenge now is to keep the momentum.” There have also been unforeseen problems. “Obviously Cov- id-19 has had huge implications on all of us,” Weston says. “But we continue to focus on delivering strong investment per- formance on the assets already transitioned into the pool, launching new pooled funds in more asset classes and build- ing our internal skills and capabilities.”


Successes of LGPS pooling So far LGPS Central has approximately half of the total partner fund assets under its stewardship, in a broad range of pooled investment funds across public and private markets. Weston emphasises leveraging the scale benefits of pooling has increased the effectiveness of responsible investing, par-


Issue 104 | June 2021 | portfolio institutional | 47


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