Agenda item

The government is consulting the LGPS on further changes to how our investment assets are managed. The proposals embed pooling and extends the role of the FCA regulated pool company in managing our assets.

The Group Manager for Funding, Investment & Risk introduced the report to the Committee and highlighted the following issues to them.

She explained that the government is consulting the LGPS on further changes to how our investment assets are managed. She said that the proposals embed pooling and extends the role of the FCA regulated pool company in managing our assets.

She stated that the proposed changes are highly material and broadly cover three areas:

• Reforming LGPS asset pools
• Boosting LGPS investment in their localities and regions of the UK
• Strengthening governance of both LGPS and pools

We do not agree that administering authorities (AA) should be required to transfer legacy illiquid investments to the management of the pool as it has not been made clear the benefit to the pool company or the AA of transferring illiquid, closed ended funds being wound down to expiry.

We do not agree that the pool should provide investment advice on the investment strategies of its partner AAs as conflicts of interest may arise if pools provide strategic advice and implement the strategy. Therefore, LGPS funds should not be required to take strategic advice from the pool company. Whilst AAs may wish to obtain strategic advice from the pool company, they must be able to access independent high-level strategic advice.

She explained that the Avon Pension Fund Committee will still set the Investment Strategy.

She stated that they are pleased to see that the main recommendations of the 2021 Good Governance Review by The Scheme Advisory Board are finally being implemented. She added that the APF has already implemented many of the recommendations and as a result these proposals will have less impact on the fund.

She said that they were not supportive of mandated collaboration on issues such as administration as the potential to generate significant economies are lower but the risk of transferring data etc. are far higher.

She said that the deadline for responses from the Fund was 16^th January 2025 and from the Pools by 1^st March 2025. She added that, at this stage, any changes were anticipated to commence from 1^st April 2026.

She added that any changes made to the circulated draft response would be cleared with the Chair of the Committee prior to submission.

Jackie Peel said that she wanted more clarity in the response and for it to clearly state where it does and does not support the proposals.

John Finch stated that the Fund must continue to receive its own independent investment advice. He added that he felt that the APF were one of the most advanced funds in terms of its governance arrangements.

He said that the deadlines that have been set are too short.

He added that if a pool was not established as an investment management company and authorised by the FCA by 2026 then it should consolidate.

Pauline Gordon asked if there would be a big difference to the asset allocation process.

The Group Manager for Funding, Investment & Risk replied that where the Fund can now allocate 50% equity across a number of equity portfolios, under the new proposals it could still state the percentage, but Brunel would carry out the actual allocation between the portfolios. She added that they would therefore need to have defined investment objectives and that Brunel need to have their role defined and take true ownership of the portfolios.

Charles Gerrish referred to question 14 of the consultation and said that if  administering authorities were asked to work with their local Combined Authority this could lead to Brunel to having many interactions with different bodies and could become quite time consuming.

He added that parts of the consultation appeared contradictory by suggesting a reduction in powers, but asking for further training to be undertaken.

The Group Manager for Funding, Investment & Risk replied that this may have been more difficult if suggested a few years ago, but WECA have increased its capability in this area.

Mike Drew stated that he was not a fan of further consolidation.

William Liew said that the Fund should choose which battles to win as it was likely that the Treasury would push the proposals through. He added that they should be proud of the good work that they have already established within the Fund.

Councillor Joanna Wright commented that she agreed and that the Fund should focus on the elements of the consultation that it could win. She added that she would continue to challenge Mercer on their climate advice and that the Fund’s ESG responsibility needs to be maintained.

John Finch said that it was better to be engaged in the process to attempt shape the outcomes for the Fund and for Brunel.

Nick Weaver commented that many feel that the proposals are inevitable and said that the strategic asset allocation must be in line with the Fund’s risks and returns. He asked if Brunel’s view on the proposals were known.

The Group Manager for Funding, Investment & Risk replied that they had only been able to have one meeting with them on this topic so far.

She added that she would welcome any further comments from the Committee via email.

The Chair said that he would send a final draft of the response to all members prior to it being submitted.

The Committee RESOLVED to approve the draft response, subject to any changes made as a result of comments / emails from Committee members. This would then be cleared by the Committee Chair before APF’s final response is submitted.