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New ministers bring change in ‘mood music’ on LGPS infrastructure investment

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The government may consider changing the terms of its demand that the Local Government Pension Scheme increases its investments in infrastructure, according to the LGPS Advisory Board.

In its 2015 instructions to LGPS funds to form six investment pools, the government also demanded the funds invest more heavily in infrastructure, although it did not specify how much of a fund’s portfolio this should be. Former chancellor George Osborne was particularly keen on this approach. 

Speaking at the LGC Investment Summit on Thursday, Jeff Houston, head of pensions at the Local Government Association, said that the “mood music” from the government on pooling and infrastructure has changed since Theresa May took power and appointed new ministers.

Mr Houston told delegates that the “axis has shifted back towards the Department for Communities & Local Government” rather than the Treasury in terms of leading the pooling reforms, and that the new communities secretary Sajid Javid is “taking an interest, particularly in infrastructure”.

“There may be slightly different objectives,” said Mr Houston. “It could be a lot less about using our money for George Osborne to pay for his projects. We could be starting to talk about assurances and the government putting its own money on the table.”

Mr Houston confirmed separately to LGC that the LPGS Advisory Board has written to DCLG to address the possibility of the government offering guarantees on some of the infrastructure projects in which it wants LGPS funds to invest, or investing in some of these jointly itself.

LGPS funds have long argued that there is a conflict between the government’s demands that they invest in infrastructure and funds’ responsibilities to invest in the best interests of their members.

The government believed the barrier to LGPS investment in this area was that the funds individually could not afford to invest in infrastructure, due to the higher level of due diligence required, and that pooling would solve this problem.

Funds have argued, however, that this is not the only stumbling block; finding investments suitable for their individual strategies was also problematic. The LGA has also argued that the government could not legally force funds to invest in a certain way.

Speaking on a panel at the LGC Investment Summit, delegates representing various LGPS pools reiterated their reluctance to invest in infrastructure for any reason other than to achieve good returns.

The speakers were asked if there was any type of infrastructure investment that they had already ruled out.

Fiona Miller, head of pensions and financial services at Cumbria CC, part of the Border to Coast pool, said: “We are not ruling anything out as long as it is an investment-led decision.”

Dafydd Edwards, head of finance at Gwynedd Council, part of the Welsh pool, said: “It might not be in our gift but we want to avoid being forced into any particular investment.”

Ola Owolabi, head of finance – accounts and pensions at East Sussex CC, part of the Access pool, said: “Infrastructure will need to be clearly defined. There are lots of products out there that are not really infrastructure.”

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