• Home
  • About
  • Subscribe
  • LATIF
  • Conferences
  • Dashboard
  • Edit My Profile
  • Log In
  • Logout
  • Register
  • Edit this post

Room 151

  • 151 BRIEF

    What's New?

  • Green finance a ‘truly innovative’ way for councils to achieve net-zero goals

    May 27, 2022

  • Social care reforms ‘to cost £10bn more than government estimates’

    May 26, 2022

  • Northumberland County Council issues s114 for unlawful expenditure

    May 24, 2022

  • Two Scottish pension funds propose merger

    May 24, 2022

  • Early results suggest stability in LGPS employer contribution rates

    May 24, 2022

  • LGA calls for more government funding to support vulnerable children

    May 23, 2022

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews
  • Briefs

Valuations 2022: what might it means for investment strategy?

0
  • by Guest
  • in Blogs · LGPS
  • — 15 Dec, 2021

Photo by Precondo CA on Unsplash

Jill Davys considers next years LGPS valuations and implications for cashflow, risk managment and ESG.

It feels like only yesterday when the sense of relief at getting 2019 valuations signed off by the 31st March 2020 deadline was done just as we all headed home for covid lockdowns (was it really that long ago!).

With the 2022 valuations just around the corner, thoughts of “can it really be time for the next valuation?” and “is our data going to stand up to scrutiny?”, start to overwhelm. For many, the valuation also coincides with considerations of strategic asset allocation and potential updates to Investment Strategy Statements.

 


Room151’s LGPS Quarterly Webcast
Private markets
23 February 2022
Online
Register here for a free place if you work for an administering authority or pool


 

I was fortunate enough to chair a recent roundtable event for Room 151 on the 2022 valuations, which facilitated a stimulating discussion on what people were focusing on, including cashflow and data.

It was interesting to hear that a number of funds were still in the process of implementing the strategy agreed following the last valuation and therefore expecting to take a lighter touch approach this time around. For others, it was more thinking about the changing dynamics that might come from reaching that magic 100%+ funding position (something which seemed a long way off when I joined the LGPS at a fund with 64% funding and more than a few data issues).

On reflection, perhaps this valuation gives more cause to focus on investment strategy than it might have done in the past when the emphasis had to remain on optimising investment returns to achieve full funding, often with a need to retain high contribution rates.

So, what might the 2022 valuation mean for investment strategy. I think there are a few key aspects to reflect upon:

Cashflow

As funds reflect on where they are, and whether there are opportunities to perhaps shave contributions for employers and help with affordability and sustainability, this could have a knock-on impact to strategic asset allocation.

The increasing maturity of the LGPS means that more attention needs to be paid to the long-term cashflows, with some funds already drawing on income to meet the ever-increasing benefit payments.

———

Understanding how your asset allocation affects the overall risk within a portfolio, and assessing a fund’s risk appetite, are critical to helping make decisions on which asset classes are appropriate for your fund. — Jill Davys

———

Some long-term cashflow forecasting and a focus on regular income, inflation-linked where available (do we believe current inflation trends are only transitory?) would avoid the need to raise cash from assets at the wrong point in time.

Despite the value of such assets being pushed up, there are still opportunities to access attractive assets like core infrastructure, housing and real estate, EMD, etc. Time to focus on the income element of the portfolio.

Risk Management

There’s been a lot of talk about the LGPS de-risking, having reached some lofty heights on funding. But it’s more about ongoing risk management than de-risking.

The LGPS remains an open defined benefit pension scheme with membership and employers continuing to evolve over time. It isn’t on the road to buyout, like the private sector schemes, and therefore full de-risking is not an option.

Understanding how your asset allocation affects the overall risk within a portfolio, and assessing a fund’s risk appetite, are critical to helping make decisions on which asset classes are appropriate for your fund. It should provide trigger points for both taking risk out (in particular focusing on growth assets, given the returns they’ve delivered for funds), but also acknowledging the possibility of adding risk back into the fund at appropriate times.

Setting these triggers in advance will help to avoid either hasty decisions or rabbit in headlight moments.

Also thinking about employers within the fund, is it time to reflect on whether there should be different risk strategies for different employer groups depending on funding and covenant?

 


Save the date
20 April 2022
Room151’s LGPS Quarterly Webcast
Online
Register here for a free place if you work for an administering authority or pool


ESG

Of course, you can’t have an article on the 2022 valuation and investment strategy these days without some thought given to climate change and the wider ‘S’ (social) and ‘G’ (governance) and how that might impact on strategy.

Climate change has been on the LGPS agenda for some time and ensuring portfolios are both able to withstand the risks associated with climate change as well as capture benefits from opportunities associated with climate transition is going to be crucial.

Likewise, making sure your investment strategy is aligned with your responsible investment beliefs, particularly as we move to greater transparency with TCFD (Taskforce for Climate-related Financial Disclosures) reporting.

It can only be hoped that requirements to report will result in more standardisation of reporting, enabling clear decision-making and journey planning towards net zero made with some greater certainty. We expect pooling to be an invaluable tool in this area going forward.

Taking time out from the day job to focus on investment strategy as you go through the valuation will really pay dividends in terms of long-term planning and keeping funds on track to achieve long term objectives. Good luck to everyone in 2022.

Jill Davys is finance & investment manager & head of LGPS, London Borough of Sutton / Redington.

—————

FREE monthly newsletters
Subscribe to Room151 Newsletters

Room151 Linkedin Community
Join here

Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address

Room151 Webinars
Visit the Room151 channel

 

Share

You may also like...

  • Insights and inspiration from LGPS leaders past and present 10th May, 2022
  • An ethical charter for responsible investors 18th Oct, 2021
  • Thriving in the pandemic: Avoiding the stragglers 12th Jan, 2021
  • Room151’s 10th Anniversary: LGPS shifts from alternatives to pooling and Covid 3rd Nov, 2021

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 7 hours ago

    MOTB speakers and attendees call for permanent IFRS 9 override: Attendees at Room151’s Monthly Online Treasury Briefing (MOTB) have again demonstrated a strong preference for the IFRS 9 statutory override to be made permanent. An online poll on the… dlvr.it/SRB2vF pic.twitter.com/J25EIt7tTm

    Room151 1 day ago

    IFRS 9 override ‘should be extended or made permanent’: Treasury managers and section 151 officers are overwhelmingly in favour of the IFRS 9 statutory override being extended or made permanent, according to a Room151 survey. The survey showed that[...] dlvr.it/SR6Gt4 pic.twitter.com/u67PMepYoO

    Room151 1 day ago

    Rachel Brothwood: ‘pooling has given us scale, depth, breadth and knowledge’: The director of pensions for the West Midlands Pension Fund talks to Mark Smulian about the success of the LGPS pools, the journey to net zero, government targets for… dlvr.it/SR6GqZ pic.twitter.com/CTS1hp2QS2

    Room151 2 days ago

    Tougher housing regulation ‘will make some councils intensely uncomfortable’: The new regulatory regime for social housing will be more intrusive and is likely to make some councils “intensely uncomfortable”, the director of strategy for the Regulator of… dlvr.it/SR2yGC pic.twitter.com/G1fM5csmS2

    Room151 3 days ago

    The stage is set for #Housing151 See you shortly! pic.twitter.com/zRAMHRItNi

    Room151 3 days ago

    Two Scottish LGPS funds @LothianPension and @falkirkcouncil hope to join ships in potential merger. Find out more by clicking the link below 🔻🔻 room151.co.uk/brief/two-scot… #lgps #pension pic.twitter.com/YEiEIXEtpB

    Room151 3 days ago

    Good new for LGPS employer contribution rates as early results show stability. @hymansrobertson Click the link below to read 🔻🔻 room151.co.uk/brief/early-re… #lgps pic.twitter.com/E4Lc5Tmyrm

    Room151 4 days ago

    LGPS: stable outlook for employer contributions: An analysis of 100 local authorities shows that employer contribution rates are likely to remain stable following the 2022 LGPS valuations. Fund actuary Robbie McInroy examines the results and trends.[...] dlvr.it/SQyhGD pic.twitter.com/IkLko7g5A1

  • Categories

    • 151 News
    • Agent 151
    • Audit
    • Blogs
    • Business rates
    • Chris Buss
    • Cllr John Clancy
    • Council tax
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Education
    • Forum
    • Funding
    • Governance
    • Graham Liddell
    • Housing
    • Ian O'Donnell
    • Infrastructure
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • Levelling up
    • LGPS
    • Mark Finnegan
    • Net Zero
    • Private markets
    • Recent Posts
    • Regulation
    • Resources
    • Responsible investing
    • Richard Harbord
    • Risk management
    • Social care
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Transport
    • Treasury
    • Uncategorized
    • William Bourne
  • Archives

    • 2022
    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story LGPS funding adequacy: Is 150% the new 100%?
  • Next story LGPS: Top stories 2021

© Copyright 2022 Room 151. Typegrid Theme by WPBandit.

0 shares