LGPS could face consolidation to eight pools

Whitehall is likely to require local government to propose a maximum of around eight pension investment pools according to the man leading negotiations on behalf of local government.

Jeff Houston, head of pensions at the Local Government Association, last week held talks with officials from the DCLG and Treasury about the shape of a forthcoming consultation about streamlining Local Government Pension Scheme investment mechanisms.

He told Room151 this week that indications were that the government was likely to present two separate sets of legislation for consultation in October or November.

“Nothing has been decided on, but the hint seems to be that government is looking at setting criteria that the government is looking for pooled funds of a significant size – between £25bn and £30bn.

“With a total of £200bn currently invested in LGPS at the moment, the highest number of pools we would be likely to see would be eight and it could be less.”

He said that the government was “open minded” about whether the pools would be actively or passively managed, or whether there would be a mix of the two.

And there is still everything to play for in terms of structures, with the possibility of a regionally-based system or pools defined by asset type.

Meanwhile, more than 30 funds turned up to a meeting on Friday to discuss proposals for a new  mutually-owned investment management body, revealed last week by Room151.

Nick Greenwood, pension fund manager at The Royal County of Berkshire Pension Fund was one of the organisers of the meeting.

He said: “We had a good turnout of funds and there was clearly some interest in the idea.

“It is fair to say that there was consensus that we should explore whether we pool the existing in-house expertise across the whole of the LGPS.

“I would envisage that initially it would be existing staff staying where they were with a small central team but focusing on their specialities and strengths rather than trying to be a jack of all trades.”

Greenwood said he anticipated the emerging proposal would sit alongside the proposals emerging from the discussions with DCLG and Treasury.

“I think there will continue to be 89 LGPS funds – anything else would require secondary or even primary legislation.

“You couldn’t just group all funds in a particular region together under the management of one of the existing funds – I don’t think they would be keen to take on the liabilities of other funds.

“However, the government is keen that there will be bigger pools with individual funds all accessing them. Whether that will be a single pool for passive investments, for example, with everyone having to go through that or a bigger and bolder version of the London CIV remains to be seen.”

Greenwood said that data would be gathered along with information on current capabilities before further meetings are held to develop the idea.

Photo (cropped) Garry Knight, Flickr .