Following the success of the two LGPS events in 2017, the IPF and AREF ran a further update seminar that considers the implications for property of the government’s requirements for the existing 89 Local Government Pension Scheme (LGPS) in England and Wales to ‘pool’ their investments.
Ben Eaton, a partner at hosts Goodwin, welcomed the large audience to the event after which the event chair, John Forbes, introduced the panel. Richard J. Tomlinson is the Head of Investment Strategy at the Local Pensions Partnership, which is the Asset and Liability Management (ALM) partnership between Lancashire County Pension Fund and the London Pensions Fund Authority. Kevin Etchells is the recently appointed Investment Manager for property at the Greater Manchester Pension Fund (GMPF), the largest LGPS fund. John Raisin is Independent Advisor for Governance and Investment for the pension funds of the London boroughs of Barking and Dagenham, Haringey and Waltham Forest, Independent Chair of the Board of Merseyside Pension Fund and an advisor to the Nottinghamshire Pension Board. Marc Roberts is an associate partner in the real estate advisory team at EY advising on a variety of real estate and infrastructure matters.
The discussion opened with a general review of where the pooling process has reached. The conclusion was that the eight pools were still mainly concentrating on the bigger by volume but easier by complexity challenges of pooling equities and fixed income. However, they are now starting to wrestle with the challenges of pooling real assets, and this is highlighting the current differences in historical approach and maturity of the different LGPS schemes. Pooling existing real estate is likely to be a long drawn out process, and may in fact never happen. This will not prevent pooling of new investments.
John Raisin raised an interesting point on the state of funding of the LGPS. After a period of net inflow to the funds, a variety of economic and political drivers are causing the funds to move to net outflow, in some case even if investment income is included. From the perspective of the real estate investment management industry, the negative implication is that the overall size of the pool may decline. The positive implication is that there will be an increasing need for long-term, income generating investments, so potentially a greater proportion of the reduced pot allocated to real estate and infrastructure.
One of the potential consequences of pooling is the capacity to invest in more complex assets. The panel discussed the GLIL infrastructure vehicle. This is a joint venture between GMPF and LPP and may provide a model for investment in other complex asset types. Even if there is no further consolidation of the eight overall pools, joint ventures such as GLIL may reduce the number of pools of capital for specific asset types.
There was then an extended and multi-faceted discussion on the relationship between the LGPS and the relevant local authority, and what this meant for investment in your own back yard. This also covered one of the original political motivations for the pooling – to create sovereign wealth funds to invest in local infrastructure. The LGPS funds have a fiduciary duty to generate returns to pay pensions and this overrides any political desire to support worthy local initiatives.
Overall the conclusion was that although the pools now generally had detailed plans as to how they will deal with real estate and infrastructure, this will be implemented over years rather than months. AREF and the IPF will continue to follow this issue and will hold further update seminars.
AREF would like to thank all the panellists for their valuable contribution, John Forbes for his masterful chairing, Goodwin for kindly hosting and all our members that attended and helped make this event a success. One of the core aims of AREF is to bring the industry together to discuss topical issues that may challenge and/or provide opportunities for our members and investors.