Politicians challenged by power of LGPS pools
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Politicians on local government pension fund boards will find it hard to relinquish their power over appointing fund managers after the introduction of new pooling arrangements, according to sector experts.
Initial guidance on pooling released by the government last year will transfer responsibility for appointing fund managers from individual funds to the pool level.
While asset allocation and investment strategy will remain at the local level, some believe councillors will struggle to get used to their removal from the process of appointing fund managers to specific mandates.
Speaking at the Pensions and Lifetime Savings investment conference in Edinburgh last week, Berkshire Pension Fund manager Nick Greenwood said: “The chief investment officers of the pools should be making recommendations for asset allocations to the clients, who in turn should be making recommendations and giving discretion to the CIO within parameters they set.
“A lot of funds will prefer to keep that sort of discussion locally until trust is built up.
“It is going to take a long time for trust to build. Councillors have spent a lot of time and effort getting to know their funds and strategies and all of a sudden will be told they can’t choose fund manager A or B, but if you want to do that strategy you need to use fund manager C.
“It is going to take a lot of learning and negotiation before we even get to collaboration.”
Greenwood added that it would become increasingly difficult for individual funds to maintain niche investment strategies.
“I can see the range of choices available to councillors when discussing strategies narrowing.
“In four or five years’ time they might find it very difficult to argue why they should retain very specific mandates that nobody else has.”
Phil Triggs, strategic finance manager (pension fund and treasury) at Surrey County Council, told Room151: “It is a key change and for many politicians – the members of the committees which have made decisions on the appointments and terminations of managers – it is a hard thing to grasp.
“The government has made it clear that this process will be removed from the administering authority committees. It is well set out in the guidance. It hasn’t gone down well in all places but there is unlikely to be any formal challenge to it.”
John Raisin, lead consultant for local government pension fund adviser JRFS Pensions, said that emerging pool structures must ensure the voice of local funds are heard clearly in the decision making process.
He said: “In my view it is very important that the individual funds have as much input and governance responsibility as possible. At the end of the day, these pools are just investing on behalf of the individual funds.”
