Agenda item

This report relates to the consultation launched by the Department for Levelling Up, Housing and Communities (DLUHC) regarding the investments of the Local Government Pension Scheme (LGPS). The report covers the areas of asset pooling, levelling up, opportunities in private equity, investment consultancy services and the definition of investments.

Sawan Shah (Head of Pensions, Brent Council) presented the report, which outlined the Department for Levelling Up, Housing and Communities (DLUHC) consultation on proposals relating to the investments of the Local Government Pension Scheme (LGPS), covering the areas of asset pooling, levelling up, opportunities in private equity, investment consultancy services and the definition of investments. The Committee noted that the consultation closed prior to the meeting, on Monday 2 October, with officers submitting a formal response on behalf of the Council which had been circulated to all Sub-Committee members.

Regarding asset pooling, members were informed that the government had proposed to accelerate and expand pooling, with March 2025 being considered as the deadline for asset transition. Furthermore, it was also proposed to transition towards fewer pools to maximise benefits of scale, with pools operating as a single entity which acted on behalf of and in the sole interests of the partner funds. In addition to asset pooling, it was proposed to strengthen existing guidance on delegation of manager selection and strategy implementation, that administering authorities set a training policy for committee members and to report regularly on the training undertaken by committee members, to amend regulations to require funds to set a plan to invest up to 5% of assets in levelling up the UK and to require funds to invest 10% of their assets in private equity.

Overall, the Committee were advised that officers were generally supportive of increased pooling and recognised the benefits such as fee savings and greater access to certain asset classes that increased pooling offered. However, members noted that a number of concerns had been raised regarding the proposals, which were widely shared across local government and are summarised below:

•         The proposed deadline for the pooling of listed assets of March 2025 was considered challenging.

•         As it would be difficult to transfer passive or index-tracking assets by the proposed deadline without incurring significant transaction costs and higher ongoing charges, concerns were raised that these assets would not be classified as ‘pooled’.

•         It was believed that funds should retain responsibility for setting asset allocations and therefore any ambitions regarding asset allocations should be guidance rather than a requirement.

•         The resource burden surrounding the requirements for publishing plans/reporting was highlighted.

•         The ambition or requirement to invest 10% of asset allocation into private equity was not supported as many funds were fully funded and thus there was less need to take risk and the requirement contradicted other parts of the proposals which stated that funds would retain control of their investment strategies.

With the Chair opening the floor for contributions from the Committee, the following discussion took place:

•         The Chair outlined that at the London CIV Annual Conference held on 4 and 5 September 2023, the aforementioned concerns were widely shared, particularly concerning the requirement to invest in private equity and the implementation of pooling by March 2025.

•         Regarding next steps, the Committee were advised that funds were awaiting a response from DLUHC, and it was expected that an additional consultation would be held concerning the draft legislation. However, it was explained that if the regulations were not in place for April 2024, it would be difficult to meet the proposed deadline of March 2025.

•         In highlighting the focus on the reporting related to the Task Force on Nature Related Financial Disclosures (TNFD) and the Task Force on Climate Related Financial Disclosures (TCFD) at the LCIV Annual Conference, members heard that the requirement to report these disclosures was still a number of years away.

With no further contributions, the Chair thanked officers for the report and the Committee RESOLVED to note the consultation on proposals relating to the investments of the LGPS and the summary included in section 3.2 of the report.