It’s been an eventful quarter for LGPS: the latest triennial review revealed average valuations at 95%; KPMG clashed with actuaries over analysis of the scheme’s deficit; warnings were given that pooling is no guarantee of fund performance; and new research showed a substantial spike in the allocation of investments to alternative assets.
30 March 2017
Essex awards £150m infrastructure mandate
Essex Pensi0n Fund announced that IFM Investors and JP Morgan Asset Management has won a £150m infrastructure mandate, which will see each managing funds equivalent to 1.3% of the pension fund’s total assets.
The Essex fund grew from £3.5bn in 2011/12 to £5bn in 2015/16. It has an estimated 53,000 contributors and 37,000 pensioners.
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23 March 2017
KPMG accused of ‘misleading’ analysis of LGPS deficit
Actuaries pooh-poohed claims that a significant drop in the Local Government Pension Scheme deficit is due to their decision to increase the discount rate by around 0.25% a year relative to gilt yields.
Consultancy KPMG estimated that the deficit across the whole scheme had fallen from £47bn to around £35bn.
The firm said that the fact that the drop indicated an increasing reliance of the LGPS on future asset performance, putting them in a higher risk position.
Paul Middleman, partner and head of public sector actuarial at Mercer, said: “In our view the analysis and comment from KPMG paints a misleading picture.
“LGPS benefits increase in line with CPI inflation so an LGPS fund’s ability to generate investment returns from its assets in excess of CPI inflation forms a key part in assessing those future benefit costs.”
21 March 2017
Asset allocation to alternatives climbs 61%
Investment advisers State Street revealed that asset allocation to the alternative investments had increased by 61% over the three-year period to 2016 adding up to £16.6bn in value. Research also showed a 31% increase in assets allocated to fixed income. LGPS assets now stand at £251.8bn.
Andy Todd, head of UK Pensions and Banks, Asset Owner Solutions, State Street said, “Mounting cost pressures and persisting lower-for-longer yields have led pension fund investment committees to seek ‘higher yielding’ assets to assist them in meeting their strategic investment targets. Alternatives have historically been seen to provide this solution.
16 March 2017
National infrastructure platform set for post-2018 launch
Room151 learned that plans to create a national platform to pool Local Government Pension Scheme infrastructure investments were progressing, with a launch date anticipated after the eight “regional” pools are up and running.
Fiona Miller, head of pensions & financial services at Cumbria County Council, told Room151: “A national platform can’t be created until the other pools are in place. You need a small number of delegated people to negotiate contracts — coordinating this among 89 funds is not a way to get an effective negotiation.”
9 March 2017
Council attaches strings to pension pool participation
Kensington and Chelsea council sought assurances on governance arrangements, largely concerning manager selection and the role of active managers, before it would commit any investments to its Local Government Pension Scheme (LGPS) pool.
Representatives from the London Collective Investment Vehicle (CIV) pool were asked to explain why it should commit funds to the pool.
Kensington & Chelsea councillor Warwick Lightfoot, said: “A CIV can be a useful device for us to invest in, if it is with people we want to invest with. However, we would probably want a closer eye on fund management than a CIV allows.”
Pooling no guarantee of performance
The Investment Association said that the pooling of pension fund assets was did not mean an improvement in performance and funding was certain. In its response to the Financial Conduct Authority’s study of the asset management market, the IA agreed there were benefits from pooling including reduced management fees.
“However investment management fees are but one component of overall costs involved in the investment process and it is not clear if overall costs will fall. Even if they do, it is not axiomatic that performance, and ultimately funding, in the case of DB schemes, will be improved as a result,” the report said.
21 February 2017
Berkshire takes 20% stakes in asset manager
Royal County of Berkshire Fund invested £8m to take a 20% stake in specialist asset manager Gresham House.
Chair of the Berkshire pension fund John Lenton said: “This platform will enable us to reduce costs and obtain diversity in our investments.
‘We will be targeting niche areas and make investments which are smaller and usually longer term than those that interest the major investment houses.”
15 February 2017
Q&A with Kieran Quinn: Housing, infrastructure and tough times ahead
As the Greater Manchester Pension Fund steps up its direct investment in housing development, Kieran Quinn, chair of the fund, talked to Room151 about the need for central government to coordinate a single LGPS infrastructure pot before the momentum created by pooling is lost.
9 February 2017
Government calls for LGPS investment in new homes
The government reiterated its desire to see Local Government Pension Scheme pools step up their investment in infrastructure, making explicit for the first time that it counts housing within the category.
The call came in the white paper Fixing Our Broken Housing Market where ministers said: “Pension schemes are increasingly regarding housing as an appropriate investment. The pooling of local government pension funds will increase opportunities for their assets to be used to support infrastructure projects, including housing.”
2 February 2017
LGPS achieves average funding ratio of 95%
As the 2016 triennial valuations came to a close Local government pension schemes in England and Wales revealed an average standard funding ratio of 95% — although this hides huge variations in performance — according to figures from the LGPS Advisory Board.
The anonymised results showed that the top funded scheme has a funding ratio of 123%, with the worst performer at only 66% funded.