CIPFA to issue LGPS asset pool governance guide

24 Aug 16
CIPFA is to launch guidance on the governance principles for local government pension scheme asset pools following the submission of formal collaboration plans to government.
CIPFA is to launch guidance on the governance principles for local government pension scheme asset pools following the submission of formal collaboration plans to government.

The Welsh pool, which contains eight funds, is one of several that has been submitted to the government. Photo: Alamy

The guide will set out the key governance issues that the 89 LGPS funds in England and Wales must consider as the pooling proposals are developed ahead of planned implementation in April 2018.

Former chancellor George Osborne set out plans to merge all LGPS assets into what he called British Wealth Funds last October. Details on the proposed pools, with eight groups having formed, were submitted to ministers on 15 July.

Proposals include the London common investment vehicle across the capital’s 32 boroughs and the City of London, a Northern Pool across West Yorkshire, Greater Manchester and Merseyside funds, and the Local Pension Partnership of Lancashire, Berkshire and the London Pension Fund Authority. A Central pool across nine funds is also proposed, as is a 10-strong “Brunel” pool, made up mainly of funds from the South West of England. Nine shire authorities and the Isle of Wight make up the ACCESS (A Collaboration of Central, Eastern and Southern Shires) group, while a Welsh pool across the Wales’ eight funds, and a 13-strong Borders to Coast cluster, were also submitted.

The governance document, which has been developed by the CIPFA pensions panel with Aon Hewitt, is intended to highlight areas that individual LGPS funds should consider. These include managing conflicts of interest and risk management approaches, as well as information and reporting requirements, and the responsibilities of chief finance officers.

Pensions panel chair Mike Ellsmore said the guide would help inform funds’ oversight of the pools from the perspectives of both clients and shareholders.

“The new investment pools will allow administering authorities to concentrate on effective strategic asset allocation while the pools focus on fund manager selection. Good communication will be key as employers and administering authorities will need to feel that they continue to influence decision making – it is, after all, they who will meet the cost of bad decisions.”

Karen McWilliam, the head of public sector governance at Aon Hewitt said “We were delighted to work with the CIPFA pensions panel on developing this guidance. Administering authorities will recognise much of what the guidance is recommending as being governance best practice. It should, however, assist authorities in focusing on how they may need to evolve their governance to fit with the new asset pooling arrangements.”

One of the aims of pooling is to boost LGPS investment in infrastructure.

Neil Sellstrom, CIPFA’s treasury management and pensions adviser, said the sector was considering the options for this technical and specialised investment area, including a dedicated infrastructure fund that would have different pools as members.

An examination of how pooling could work was published in January by Hymans Robertson. It called for a single infrastructure investment vehicle that would work across pools.

Dave Lyons, the head of public sector investment at Aon Hewitt added “And of course it is important to remember that the decision on how much to invest in infrastructure is a strategic investment decision and will remain at the local pension fund committee level. The investment pools will therefore need to consider aggregate demand; within their own pool and potentially across pools, in addressing this aspect of government guidance.”

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