The recommendation forms part of a report examining how asset pooling could work across the Local Government Pension Scheme after George Osborne called on the 89 authorities in England and Wales to develop plans to bring assets together into six British Wealth Funds. The chancellor has called for each to contain at least £25bn of scheme assets as part of efforts to boost investment in infrastructure projects, and initial proposals are due on 19 February.
Following the chancellor’s announcement, consultants Hymans Robertson convened a working group of 24 local authorities to consider how they could be developed.
The Project Pool report, published today, found the government’s objective of setting up six pools can be met if these are established on a multi-asset asset basis, including actively managed listed equities and bonds. Bringing together assets across the LGPS could deliver estimated annual savings of between £190m and £300m within a decade, the report found.
However it concluded the six pools may not realise Osborne’s ambition to boost infrastructure. A shift to increased investment in projects would need further LGPS-wide collaboration in addition to the six funds.
Speaking to Public Finance, Mark Wynn, head of finance at Cheshire West and Chester and head of the Chester Pension Fund that is set to join a £35bn Midlands pool, said “the way to invest in infrastructure is to have some sort of national platform to be able to pool money together”.
Given the low levels of infrastructure commitment currently in the LGPS, this would allow funds to grow their investment at the appropriate time, he stated.
“What we would do at fund level is look for the type of return we needed and, if it was inflation-linked for example, infrastructure might be something we would want to do.
“Project Pool is proposing to set up a vehicle that allows us access to infrastructure when the appropriate assets are there, and give us the ability to grow our investment in infrastructure at the appropriate time.”
A national approach to infrastructure was needed in order to get the scale for investments, he added. “Once they are available, this would give us a way to invest in them. I think the pools would then commit to invest in them.”
Hymans Robertson partner Barry McKay said the platform could build on existing initiatives.
“Infrastructure is an assert class where Project Pool has identified that it need be a national pool that all funds can invest into. That asset class might sit outside the [six] multi asset pool that any of the LGPS funds could invest in,” he stated.
“There’s some work been done on this already through Greater Manchester and the London Pensions Fund Authority, and there’s the Pension Investment Platform scheme, so the pooling process may build on either of those. It does feel that there will be potentially more investment in infrastructure over time because the opportunity is there and the framework is there to be able to do it.”
Ahead of the deadline for administering authorities to submit initial plans to government, Public Finance understands that as many as eight pools are being developed.
