Mike Weston has stepped into the chief executive role at LGPS Central at something of a staging post for the Local Government Pension Scheme (LGPS).
At the start of the year the government circulated guidance on asset pooling, the implied aim to speed up the transferring of assets from funds to their pools without undue delay. Central is also celebrating a year since its formal launch last April.
Mr Weston, who joined Central on 7 March, sees in the guidance recognition “that lots has been achieved by the pool companies in their first year of existence”, as well as acknowledgment there’s “clearly a lot more to be done”.
“If you go through a phase of huge effort in setting something up and get it going there’s always a danger in having gone through that phase the foot goes off the accelerator,” he said.
Mr Weston’s aim going forward is to build on “the strong foundation established in the first year”, with an emphasis on relations with Central’s partner funds, which include the funds for Cheshire, Derbyshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Worcestershire, the West Midlands and the West Midlands Integrated Transport Authority.
Much has been made of the divergence in the pooling models, which deepens the sense that pooling is an experiment which will yield mixed results. But Mr Weston said: “This is not a competition between the various pools. We and the other pools were set up to serve the partners funds’ needs.”
He does, however, see his pool as in competition with asset managers. Pooling was pitched as a means of generating economies of scale and lower investment fees for funds. “Inevitably you’ll be compared to what’s on offer in the whole asset management spectrum,” Mr Weston said.
Mr Weston cites the development of in-house expertise as a key part of Central’s strategy. The pool developed its internal capabilities in part by absorbing those of its constituent funds. It will be launching a graduate scheme later this year to develop new staff, as well as hiring more experienced people.
Using internal versus external managers is decided case-by-case, but Mr Weston says some academic evidence suggests in house investment management adds value, particularly on the transparency and governance side. “But none of those things will compensate if you’re not adding value to the client,” he said.
Something else that the LGPS is liable to be measured on is infrastructure investment. The scale created in pooling was seen by the government as a prerequisite to the scheme putting more money into infrastructure in the UK.
Mr Weston’s previous role was chief executive of the Pensions Infrastructure Platform, which was founded in 2012 to facilitate investment in UK infrastructure from pension funds, including the LGPS. He emphasises that the government “has become more pragmatic” in steering the LGPS in that direction.
“My understanding is the Treasury doesn’t want to mandate funds to do particular things, because if it did mandate the funds and there was a loss, the logical recourse would be to go back to the Treasury and ask it to make up the deficit,” he said.
“I think there’s a bit more pragmatism coming in now [from government]. If there’s a decent allocation to infrastructure in general a proportion of that will be invested in the UK and some portion of that could be in greenfield.”
He credits the government’s guidance on this point as stimulating interest in UK infrastructure, but argues that the asset class will be judged on its merits, and against other assets. “We have to look at everything in the round, rather than say this asset class looks expensive or cheap,” he said. Central is due to set up an investment vehicle for infrastructure later this year.
In addition to the focus on infrastructure, considering environmental, social and governance (ESG) factors is a priority for Central. Over the past few years campaigning groups have lobbied local authorities to divest from firms that pollute the environment.
Mr Weston positions himself in the “camp of engagement” in the debate over whether investors should work to change misbehaving companies they own or “absolve ourselves of any responsibility” by selling the stock.
“We have to be mindful of fiduciary duty but in its wider sense: deliver returns financially and in the broader world in which pension scheme members have to live going forward,” he said.
As for the relationship to local voters, who have only an indirect link to the pools via the pressure they can put on local authorities, Mr Weston said he is “very comfortable” being exposed to that pressure.
“Clearly, I’m not an elected official, but we have undertaken to our partner funds that we’ll be transparent in what we do so they can be transparent to their elected members and local voters,” he said. “As stewards of partner funds’ assets, they’ll know what we’re doing and there’s transparency for their voters there. I’m very happy that we’ll be held to account by our partner funds.”