The civil servant overseeing local government pensions has said investments in UK infrastructure ”must earn LGPS money”, countering the perception that funds are obliged to channel money in that direction.
Teresa Clay, head of local government pensions at the Ministry for Housing, Communities & Local Government, said pensions pooling had not been chiefly intended to secure better funding for British infrastructure, but had been motivated by reducing investment costs.
“It was interesting to hear this morning the perception from outside the scheme that driving investment in infrastructure was the main reason for reform,” she told the LGC Pension Fund Symposium last week.
“That’s absolutely not the case.
“There’s absolutely no requirement to invest in UK infrastructure rather than global infrastructure. The drive has always got to be what will produce the best net returns overall for the scheme for your members.
“UK infrastructure must earn LGPS [Local Government Pension Scheme] money and those who seek capital from the LGPS must provide opportunities which are structured to meet the needs of the funds.”
The comments contrast with former chancellor George Osborne’s comments at the time that pooling was being proposed in October 2015.
Mr Osborne complained to the Conservative conference that local government pension funds “they invest little or nothing in our infrastructure”, though he also flagged the “expensive” fees facing the 89 funds.
Rishi Sunak, the current minister responsible for local government pensions, recently urged funds to invest a tenth of their assets in infrastructure, noting that in aggregate the 89 local government funds put just 0.5% of their assets into infrastructure.
However, he did not support settings targets. “We are working with the funds that have publicly committed to improving it,” he told LGC. “Some have put specific targets themselves.”
Mr Sunak also called on infrastructure providers to structure their capital-raising in a way that makes sense for pension funds.
“You need to be cognisant of the people you are raising money from. What are their needs? Are you structuring in a sense that makes sense for them?” he said.
In further remarks at the Symposium, Ms Clay congratulated the pools on ”an immense achievement” in banding together, with five of the pools already being operational.
“We can already estimate drawing on figures provided by the pools that actually savings have gone up from £40m to around £55m, and you’ve already heard that there’s a great deal of confidence out there in the pools that much greater savings are on their way,” she said.
“It’s also very, very welcome that there are specialist schemes being established on a number of asset classes including, particularly, on infrastructure and private markets generally.”