How big will England's local government pension schemes get?
The number of local government pension scheme pools in England and Wales could go as low as four, with assets up to £200bn, according to Richard Law-Deeks (far right) who is chief executive of the LGPS Central pool (Pensions UK)
Richard Law-Deeks, chief executive of LGPS Central, thinks that by the 2030s the number of pools in England and Wales may be down to “five or maybe even four”, with the largest among them to “exceed £150bn to £200bn” in assets under management.
“That will be revolutionary,” he said. For one thing, “it will transform what the [local government pension schemes] can do in private markets”, including in co-investments and even direct deals.
At the same time, finding themselves at the intersection between “huge funds and democratic accountability”, the responsible investment directives of the LGPS will evolve.
“The scale in pools gives them the responsibility to be active stewards of the capital,” said Rachel Wood, who heads up the £6.1bn West Sussex Pension Fund.
“Local and UK investment will be more developed by 2030”, Law-Deeks also predicted.
At the moment there are eight pools of pension funds but this will shortly reduce to six as part of the UK government's push for consolidation and bigger schemes.
Rather than individual funds outsourcing local investment directives, George Graham, director of the £11.1bn South Yorkshire Pensions Authority, expects pools to be responsible for “evaltuat[ing] individual investments and/or appoint[ing] managers”.
“Local connection is really important. Regional funds are still close to their employers and their members,” he said.
And even as schemes cozy up, more far-reaching collaboration is expected, both with DC megafunds and between the pools themselves.
For example, not all pools have the resource to originate direct investments, “nor would you be able to justify building that resource in each of six pools”, Graham argued, meaning expertise will be shared.
Whether these changes are going to be forced through - to a lesser or greater degree - remains to be seen.
Graham expects that “there will be a degree of compulsion, though it will probably be hidden compulsion”, in the form of “strong conversations between civil servants and fund officers”.