PLSA supports pooling but warns of unnecessary risks if rushed
03 October 2023
The Pensions and Lifetime Savings Association (PLSA) supports further transition of Local Government Pension Scheme (LGPS) assets into pools but warns that the specific deadline for transition of March 2025 proposed by the Government would result in considerable investment risks and substantial operational challenges.
The PLSA outlines the views of its LGPS members in its response to the Department for Levelling Up, Housing & Communities (DLUHC) Local Government Pension Scheme (England and Wales): Next steps on investments consultation.
ASSET POOLING IN LGPS
Pooling has been a successful endeavour, with net savings so far of over £380 million and a forecast of over £1 billion by 2025. While the PLSA agrees that increasing pools’ scale could be beneficial for Funds, there are concerns about the intentions of building “scale as quickly as possible” and by the proposed deadline of March 2025.
The PLSA urges that assets should be transitioned to pools in an efficient and well governed manner, without artificial timelines which could be detrimental to value.
Funds should create a plan for the transition of their unlisted and listed assets, including the detailed rationale for assets that will remain outside of the pool, to be provided in the Investment Strategy Statement (ISS). Assurances should be given by Funds that they are complying with their plans. We would support the Government setting up a timeline for this plan to be presented.
LGPS INVESTMENTS AND LEVELLING UP
PLSA members believe the best way Government can guarantee more investments are made in assets which can comply with Levelling Up missions is to support the creation of the right opportunities in the market for LGPS Funds, while considering enacting regulatory change or setting up fiscal benefits for Funds. The Government should focus on setting a framework that will help create a pipeline of investment opportunities.
While the PLSA supports the idea of Funds investing in other pools’ products, there are several issues that need to be considered, such as product design, increase in costs, products limited in capacity, pools in-house capabilities and the fact Funds may be better served by investing in asset managers’ offerings via their pool directly.
INVESTMENT OPPORTUNITIES IN PRIVATE EQUITY
All LGPS funds consider opportunities in private markets and currently allocate a total of 4.3% to private equity (England and Wales only). Strategic allocations are periodically reviewed, and for some Funds these investments will make more sense than for others. Due to this, and the fact that a specific target allocation will impact the Funds’ fiduciary duty, the PLSA does not consider an ambition of 10% should be set.
The PLSA’s submission also proposes that focus should be given to growth capital in private markets as a whole, rather than just focusing on private equity.
If the LGPS and private capital is being asked to make large, long-term, capital investments, we ask the Government to consider offering corresponding long-term guarantees and/or the necessary policy certainty to protect these potential investors.
Download the PLSA’s full submission to the LGPS Consultation here.
Tiffany Tsang, Head of DB, LGPS & Investment, PLSA, said: “Given the substantial cost savings already obtained from transitioning LGPS assets to larger asset pools, it is entirely sensible to explore whether new policy intervention might result in further gains. Similarly, given that the LGPS already invests extensively in levelling up and private equity it is right to explore whether more investment to these objectives is achievable.
“However, the core objective of the LGPS remains paramount: securing assets with an appropriate risk profile to be able to fulfil pension obligations to members. Therefore, it is important that both further consolidation and investment targets should only be undertaken if they align with the fiduciary duty to invest in the interests of scheme members.
“The LGPS faces mounting regulatory challenges so it is important that any new requirements are carefully thought through and that they build upon, rather than complicate effective scheme administration. We would be pleased to work with DLUHC to help ensure that their proposals meet the needs of the LGPS and are achievable in practice.”
Mark Smith, Head of Media Relations
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Cali Sullivan, PR Manager
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