The chief investment officer (CIO) of the Border to Coast Pensions Partnership has warned against creating a competitive culture among the local government pension pools when the government announces its long-awaited review of the system.
“I don’t know what the government is going to say, or how they will do it. What I would say is that you have to be very careful about competition within the LGPS,” John Harrison told delegates at the Room151 Investment Forum.
Harrison, who has appointed as interim CIO in January 2022, said that despite being regulated as asset managers, the pools have an “asset owner mentality”, which encourages the sharing of information and collaboration.
“Create an environment where the pools become competitive rather than collaborative and you will lose an important component part of what makes the asset owner mentality so powerful,” he said.
I don’t know what the government is going to say, or how they will do it. What I would say is that you have to be very careful about competition within the LGPS.
LGPS rationalisation
As part of a wide-ranging consultation on the future of the Local Government Pension Scheme (LGPS), the government is expected to consult soon on changes to pooling, including rules to help speed up the transition of assets and possible rationalisation of the eight current pools.
One suggestion is that local government funds could choose to place a portion of their assets with different pools. This was described by Harrison as a potentially “dangerous” outcome.
He was speaking as part of a panel session at the conference, along with his counterparts at the Brunel Pensions Partnership, London CIV and LGPS Central. The four CIOs were quizzed on their approaches by conference chair Aoifinn Devitt.
Jason Fletcher, CIO at London CIV, concurred with Harrison. “It is really about whether you want the four of us to be competing and fighting, doing arm wrestles against one another, or should we be working together. The answer has to be: what will be giving LGPS funds the best result.”
Fletcher discussed the prospect of potential pool mergers, telling delegates: “Eight I think is too many. One is definitely too few.”
Economies of scale
Gordon Ross, CIO of LGPS Central, said that the pools had originally been created based on the premise of economies of scale, fee saving and efficiencies. There were good examples, he suggested, of the pools working together on private markets, private debt and private equity.”
“They are not wasting money getting lawyers individually, they are pooling their knowledge, and then the buying power at the end of it means that it is not just the [one] pool that benefits.”
David Vickers, CIO at Brunel Pension Partnership, said he understood that an announcement on the review was imminent, and that questions have been asked about the impact of potential mergers.
“I have said ‘let’s just deal with that when we get to that point’. My job is to secure the financial security through the fund for our members and I will do that until I am told not to.”
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