Leicestershire County Council Pension Fund, which is part of LGPS Central, has decided on some significant changes to its asset allocation by further cutting back its equity exposure in favour of illiquid assets.
The £5.8bn fund, which invests on behalf of more than 99,000 members, has been underweight on income generating assets over the past two years and has held additional cash reserves throughout that period.
However, this strategic asset allocation has now been reviewed. The fund has decided to reduce its exposure to listed equities by 4.5%; it now aims for an equity exposure of just over 37%.
Simultaneously, the fund’s Local Pension Committee approved proposals to increase its exposure to infrastructure by 2.75%, bringing it to 12.5% of the overall portfolio.
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In practical terms, this means that Leicestershire has invested an additional £100m into a combination of infrastructure funds, including £35m to increase its stake in LGPS Central’s Core Fund, £20m in JPM’s Infrastructure Investment Fund and some £45m in Quinbrook’s Net Zero Power Fund. The pension fund plans to review these allocations throughout the year and is considering placing additional capital in the asset class.
By placing more money into infrastructure, the fund aims to harvest the illiquidity premium in these assets. Leicestershire is cashflow positive and therefore has scope to invest in less liquid assets. The fund is offsetting this by simultaneously investing an additional 5% of its portfolio in liquid sub-investment grade credit.
By reducing its exposure to equities, the fund also reduces the proportion of assets within the government’s pooling review. According to the Spring budget statement, the government wants to see all listed assets being pooled by March 2025. However, this requirement does not yet apply to unlisted assets, though this factor has not been mentioned in the asset allocation review.
The pension fund reiterated its aim to transfer assets “to cost effective and relevant products at Central as and when they are made available”, the Investment Sub-Committee stated. This could include further investments with the pool’s private equity and debt strategies.
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