Government levelling up agenda drives local investment forays among LGPS
Alternative investment plans and commitments dominated among the 32 individual local government pension schemes and five LGPS pools surveyed by MandateWire in the second quarter of 2024.
As local authority pension funds worked to agree and implement investment strategies formulated in light of their latest round of actuarial valuations, real estate returned to the fore.
After a relatively muted first quarter, activity in the property space increased, particularly as funds looked to allocate to local investments in line with the then UK government’s Department for Levelling Up, Communities and Housing’s ‘Next Steps on Investment’ consultation, which calls for a 5 per cent allocation to investments that contribute towards levelling up.
Real estate
Property investments accounted for 19 per cent of all expressions of interest recorded by both the individual LGPS and LGPS pools surveyed in Q2. The asset class also accounted for 22 per cent of the investment commitments made in the quarter.
Among those allocating were the £5.7bn ($7.6bn) Devon Pension Fund and the £3.1bn ($3.9bn) Gloucestershire County Council Pension Fund, which both committed to Gresham House’s Residential Secure Income fund.
The two pension schemes said that as well as committing to the UK-wide strategy, they had also made commitments to deliver new affordable housing for local residents in their counties.
In addition, the £5.8bn ($7.4bn) Avon Pension Fund awarded Octopus Real Estate with an affordable housing mandate, while the £17.8bn ($2.6bn) West Yorkshire Pension Fund appointed DTZ as its new property manager.
West Yorkshire’s chief investment officer Leandros Kalisperas noted that the fund hopes to capture some upside following a tough period in the market.
Among those looking for new opportunities in the quarter was the £3.1bn ($3.9bn) Wiltshire County Council Pension Fund. It said it was planning to add a fourth manager to handle a portion of its 5 per cent allocation to affordable housing.
Away from property, infrastructure remained popular, also accounting for 22 per cent of commitments made in the quarter. It was less popular in terms of expressions of interest however, with none of the LGPS investors we surveyed actively searching or reporting plans to allocate in the quarter.
Traditional portfolios
With alternatives accounting for 89 per cent of investment commitment made in Q2, there was little room for new investments in more traditional portfolio sectors. Just two commitments were made to equities and only one LGPS allocated to fixed income in the quarter.
The £8.1bn ($10.2bn) Kent County Council Superannuation Fund awarded two emerging market equity mandates worth £200mn ($253.2mn) apiece to Columbia Threadneedle Investments and Robeco Asset Management. Funding for the new mandates was pulled from UK equities, however.
For fixed income, the solitary allocation came from the £1.8bn ($2.2bn) London Borough of Haringey Council Pension Fund. It chose to invest 7.5 per cent of its assets in the London CIV’s Long Duration Buy and Maintain Credit Fund, managed by Insight Investment.
It was a slightly more even picture for traditional asset classes in terms of expressions of interest, with five investors seeking to allocate to equity and five investors seeking to allocate to fixed income, versus the 10 that sought to allocate to alternatives.
Buy-and-maintain credit and emerging market equity also featured among the planned bond and equity investments in the quarter.
Specifically, the £29.2bn ($36.9bn) Strathclyde Pension Fund said it was investigating how to introduce a new 2.5 per cent allocation to buy-and-maintain credit among wider changes to its fixed income portfolio that are being made as part of a new investment strategy.
Though the fund is trimming its overall equity exposure back by 5.5 percentage points as part of that strategy, it is raising its emerging market equity exposure by half a percentage point. During the quarter, it revealed it had shortlisted four managers for a planned appointment in the EM equity space.
The largest search of the quarter was an equity search from £40.3bn ($51bn) Border to Coast Pensions Partnership. In June, the pool went on the hunt for a manager to run a global multi-factor equity index fund, which it aims to launch in early 2025 with £1.4bn ($1.8bn) in commitments from its partner funds.
