In the intricate world of pension asset management for town halls in England and Wales, a recent development has set the stage for a showdown between government reform and independent entities. The Local Government Pension Scheme (LGPS), a vast financial landscape comprising £392 billion, is managed by eight investment vehicles. These entities have rebelled against the government’s push for consolidation, opting instead to remain separate players in the game.
Here are the key points that encapsulate this battle of wills and visions:
- The pools managing LGPS assets expressed their desire to maintain independence, laying out a robust business case for how they can deliver value while operating as standalone entities.
- The government mandated that all 86 local authority funds must hand over their assets to their partner pool, resulting in the creation of investment management companies authorized and regulated by the Financial Conduct Authority.
- While the government hoped for voluntary mergers among the pools, they maintained that the decision lies with the entities to present ambitious plans for the future to meet reform requirements.
- Some pools, like ACCESS and the Wales Pension Partnership, advocated for the ‘build model’, emphasizing cost-effectiveness in creating new investment management companies as opposed to costly mergers with other entities.
- Northern LGPS remained silent on the matter, hinting at a transition proposal for FCA authorization.
- Despite challenges and costs, the pools recognize the necessity of adapting to government reforms to enhance governance and drive economies of scale.
Looking ahead, the call for consolidating assets into fewer, larger pools grows louder. Advocates maintain that increased efficiency and better governance can be achieved by merging pools and reaching asset thresholds of £100 billion or more. While the vision for the future of LGPS may involve fewer but more robust entities, the path to achieving this transformation remains dotted with challenges and differing perspectives.
As the government and investment vehicles navigate this complex landscape, the ultimate objective remains clear: to unlock the full potential of the £392 billion LGPS, ensuring growth and prosperity while safeguarding the interests of members, employers, and local taxpayers.
