UK LGPS pools prioritise property in first quarter of 2024

During the first quarter of 2024, MandateWire reported on the activity of 39 individual local government pension schemes and six LGPS pools.

Across both groups, alternative asset classes took centre stage in the quarter, with just under 80 per cent of the 23 investment commitments made in the quarter going to alternatives, and 63 per cent of the 15 planned allocations tracked targeting the alts space. 

Pools 

For the investment pools we surveyed, alternatives accounted for all planned allocations recorded in Q1. More specifically, property made up the majority of the planned reweightings announced by the pools. 

One notable instance came from the £35bn ($44.2bn) Brunel Pension Partnership. In its 2023 review, released in the quarter, chief investment officer David Vickers said the pool had set specifications for its fourth cycle of private market portfolios. Its private markets offering consists of property, infrastructure, secured income, private debt and private equity, as well as an allocation to local impact. 

Furthermore, MandateWire revealed that the £26bn ($32.8bn) London CIV was working to create a new indirect property solution for its 32 client funds. 

LGPS Central, which holds £28.3bn ($35.7bn) in assets on behalf of its client funds, was the only one of the pools MandateWire surveyed that revealed it has made an investment in Q1. Specifically, it purchased Goodmayes Retail Park in south-east England as part of its UK property sub-fund, launched in December 2023 and managed by DTZ Investors. 

LGPS Central’s property investment director Mike Hardwick said that while the fund continues to hunt for opportunities to fill out its direct UK property fund, the availability of investment opportunities in the universe “remains constrained”. Sam Brice, director at DTZ, said it was “actively seeking further opportunities” as it continued to develop the property vehicle. 

Alternatives also dominated the pool universe for manager searches and tenders, comprising 60 per cent of total searches. This was equal to the number of searches where pools placed weight to environmental, social and governance factors. 

Exemplifying this theme was the £35bn ($44.2bn) ACCESS Pool. It started the year by seeking one or more global core and impact timberland investment managers, then followed up that search by releasing a tender for a social and affordable housing manager.

Local government pension schemes 

Among individual LGPS, alternatives accounted for 80 per cent of the 10 mandates awarded. Often the appointments tapped ESG investment themes. 

Among those allocating was the £3.2bn ($4bn) Oxfordshire County Council Pension Fund. It was one of five LGPS that committed to a locally focused renewable energy infrastructure fund managed by Schroders Greencoat. The investment involved the schemes acquiring a stake in the Toucan Energy portfolio, which focused on solar assets. 

The £2.3bn ($2.9bn) Cornwall County Council Pension Fund, which was among those tapping the Schroders Greencoat opportunity, leaned further into ESG, allocating £40mn ($50.5mn) to the Octopus Energy Transition Fund, managed by Octopus Energy Generation. The Cornish fund was also one of 13 local authority pension schemes to announce they were planning reviews or changes to their investment arrangements. For Cornwall, the review was prompted by “material pension increases over the last two years” and will involve a deep dive on both investment strategy and the pension’s cash management strategy. 

Others, such as the £7.2bn ($9.1bn) Staffordshire County Council Pension Fund, had completed reviews and altered strategic asset allocations accordingly. Staffordshire was one of two funds that raised their allocation to fixed income. The pension fund entirely cut a 5 per cent allocation to fixed interest gilts and instead introduced a 7.5 per cent allocation to both index-linked gilts and investment grade corporate bonds. 

Similarly, in January, the £7.7bn ($9.7bn) Kent County Council Superannuation Fund boosted its index-linked gilts mandate with Insight Investment by 3 percentage points, to 7 per cent. 

Having updated its strategic asset allocation, the £10.6bn ($13.4bn) Merseyside Pension Fund was discussing how to implement the strategy. The fund agreed to cut equities by 9 percentage points and increase bonds by 8 percentage points, but exactly how to fill that 8 percentage points had not been decided. Its adviser Redington said the fixed income holding was “not sufficiently diversified” and highlighted US corporate bonds as a potential investment case. 

Merseyside Pension Fund’s director Peter Wallach told MandateWire that US bonds were on the table but stipulated that “the tightening in bond yields towards the end of 2023 has pushed back any immediate moves” into the asset class. 

Merseyside’s planned shift towards fixed income was one of three proposed debt-based allocations tracked in the quarter across both individual local authority pension schemes and investment pools. In contrast, MandateWire counted 12 instances of funds allocating to alternatives and only one targeting equities.