The Labour party’s shadow chancellor Rachel Reeves is keen to go beyond Mansion House and draw more investment into the UK but Local Government Pension Scheme (LGPS) investors are approaching her comments with caution.
With the cabinet reshuffle dominating headlines this week, Labour’s shadow chancellor Rachel Reeves took the opportunity to outline her party’s agenda for the pension industry, including strong hints that she would like to see greater focus on investments in the UK.
Speaking to journalists, she said it was “a missed opportunity” that the Mansion House Compact did not stipulate investments in the UK economy and that Labour would review the entire pensions industry, including the LGPS, to attract greater investment in the UK economy.
However, she did note that Labour doesn’t intend to introduce mandatory investments.
Following on from chancellor Jeremy Hunt’s proposals, Labour also wants to introduce a state backed investment vehicle to attract greater defined contribution investment into high growth sectors alongside the British Business Bank. Reeves has been approached for comment by Room151 but has not yet specified whether these incentives could also apply to LGPS funds.
With the Labour party leading in the polls, LGPS practitioners will be paying close attention to her ideas. But there is also significant scepticism in the industry towards greater allocations to the UK.
Indeed, many pools argue that they already meet the 10% threshold for private equity investments set out in the latest government consultation on LGPS investment.
Chris Rule, CEO at Local Pensions Partnership Investments commented on Reeves’ plans: “It’s encouraging that the LGPS, and the broader UK pensions sector, is being acknowledged across the political spectrum for the important role it plays in supporting the development of a sustainable economy for the UK.
“However, as an LGPS investment pool managing £24bn of pension fund assets, our fiduciary responsibility is to our client funds and their pension beneficiaries.
“Our LGPS clients already invest a significant portion of their assets in UK real assets, including infrastructure and green economy projects. We see significant opportunities in the UK that will offer mutual benefits to both our clients and to UK plc, and any reforms that would help create investment opportunities with appropriate levels of risk would be welcomed.
“Global public market investments, predominately in global equities, also provide important portfolio diversification and so any new pension reform must reflect the international opportunities that deliver positive outcomes for pension funds,” he told Room151.
Steve Simkins, partner at ISIO also cautioned of greater policy intervention: “”The Labour policy on LGPS assets appears to mirror the current Chancellor’s views that the LGPS is a sovereign wealth fund whose assets can be dipped into at will. Neither party appears to have considered the complexity this creates for a national scheme that is divided into nearly 100 funds and with many thousands of employers of different types” he said.
This caution is also reflected in a survey among LGPS practitioners conducted jointly between Schroders and Room151.
Some 64% of survey respondents said that they would support the levelling up agenda, but only if it suited their investment strategy. At the same time, appetite for private equity remains mute, only about a third of the 61 survey respondents said they would consider increasing allocations in the asset class.
The full LGPS survey results can be accessed below.
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