Fund mergers off the table as DCLG announces new LGPS consultation
0After months of speculation over the future shape of the Local Government Pension Scheme (LGPS), the Department of Communities and Local Government (DCLG) has announced a consultation which will focus on Common Investment Vehicles and a greater use of passive investment strategies.
The 25 page document released yesterday by DCLG, Local Government Pension Scheme: Opportunities for collaboration, cost savings and efficiencies, has explicitly ruled out the possibility of fund mergers for the time being.
The consultation will last for 10 weeks, opening on 1 May and closing on 11 July 2014 and sets out four key proposals:
– Establishing common investment vehicles to provide funds with a mechanism to access economies of scale, helping them to invest more efficiently in listed and alternative assets and to reduce investment costs.
– Significantly reducing investment fees and other costs of investment by using passive management for listed assets, since the aggregate fund performance has been shown to replicate the market.
– Keeping asset allocation with the local fund authorities, and making available more transparent and comparable data to help identify the true cost of investment and drive further efficiencies in the Scheme.
– A proposal not to pursue fund mergers at this time.
Further details in the consultation reveal that DCLG believes some £660 million pounds of savings a year could be achieved by a move towards more passive fund management and an end to “the use of fund of funds arrangements in favour of a common investment vehicle for alternative assets.”
