NEW RESEARCH PROVIDES ROADMAP TO FURTHER LGPS SUCCESS

Posted on September 14th, 2021

• Pooling can deliver real benefits of scale to the LGPS – including better long-term performance after fees, improved control over investments, an enhanced approach to responsible investment, and reduced costs.
• New international research highlights that optimising governance, professional management, and aligning long-term strategic planning with investment implementation, are seen as key factors for long-term success.

New research on pooling in major international markets shows that pooling in the UK can drive still more value for the Local Government Pension Scheme (LGPS) in the future.  It also confirms that scale benefits in international markets have already been demonstrated as “meaningful” and “realisable”, leading to improved performance after fees, better control over investments, and reduced costs.

The independent research, commissioned by seven UK LGPS pools[1], covered eleven comparable investors in seven major international markets[2] where the pooling process is at a more mature stage.  The research sought to understand the issues and challenges these pools experienced in their evolution. As a result, it enables each individual UK pool – and its partner funds – to use the insights gained to support their own future development.

Speaking on behalf of the commissioning pools, Mike O’Donnell, CEO of LondonCIV said: “Pooling is really delivering in the UK – with the pools up and running and good progress on transitioning the assets.  This is therefore an ideal moment to plan for our next phase of development and our continued collective success.”

While recognising there is no ‘best way’ to pool, only different ways, the research nonetheless identified three characteristics of success:

• Contemporary governance – establishing clear divisions of responsibilities, and simplified, flexible decision-making (including effective delegations to specialists trusted to exercise sound judgement over the long term);
• Professional management – using the opportunity provided by pooling to bring professional teams together in a sustainable way, so that training, development and succession planning can be developed;
• Long-term strategic planning and implementation – developing agreed long-term strategic asset allocations, reviewed annually or less frequently.

The report also highlighted that the clarity of central government objectives and of the pooling framework can both impact the pace at which pooling delivers value.

Rachel Elwell, CEO of Border to Coast said: “This research gives us powerful insight into how we can deliver even greater value for the LGPS over the long term.  More importantly, it gives each pool and their partner funds insight into, and understanding of, how pools have thrived internationally, which will allow them to make the right decisions for their own individual journeys.”

The full report is available here.

[1] Access, Brunel, Border to Coast, LGPS Central, LondonCIV, LPPI and Wales PP

[2] The research examined eleven firms in seven international markets.  Individuals from these organisations agreed to interviews based on strict confidentiality, including disclosing the name of the organisation.

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