Proposals aiming to accelerate investment pooling in the government’s Mansion House reforms come with governance risks and the potential for conflicts of interest, Aon has warned.

Responding to the Department for Levelling Up, Housing & Communities’ consultation ‘LGPS England and Wales: Next steps on investment’, Aon urged the government to make sure that governance matters were not overlooked in responses to the consultation.

Aon partner and head of public sector UK, wealth solutions, Alison Murray, said there were many further practical challenges that came with moves to accelerate pooling, such as managing conflicts of interest relating to local investments, and implementing effective knowledge and skills requirements.

“The proposal to improve transparency and reporting, including a requirement for a single standard set of data on investments across annual reports and Local Government Pension Scheme (LGPS) statistics is welcome, but there is no proposal to assess nor report on any governance improvements,” she continued.

“Given some strong statements in the consultation on how accelerated pooling will improve governance, it is important the governance impacts are measured and monitored.”

Meanwhile, Aon senior consultant and head of public sector governance, wealth solutions, Mary Lambe, warned that the proposal to allow pools to support LGPS funds by making sure decisions to invest locally can be made at pool level, which aims to avoid conflicts of interest, still needed “fleshing out”.

She added that more details of how, in practice, decisions taken by individuals representing LGPS funds at pool level avoid conflicts of interest were required to better understand the proposal.

The government’s consultation also proposed that pools should be actively advising funds regarding investment decisions, including investment strategies.

Lambe noted that this proposal raised concerns of conflicts of interest if a pool was advising constituent funds on investment strategies.

“But there are other considerations, including whether pools would be able to meet the requirements of the National Framework for provision of strategic investment advice,” she stated.

“There needs to be clarity on why pools should provide this advice and what benefits it would bring to the LGPS.”

Murray concluded: “It has been a long wait for this consultation and whilst it is very positive to finally have some clarity over the direction of travel, in its enthusiasm to extol the benefits of pooling, we believe key governance aspects are being overlooked.

“It is vital that this is addressed before the proposals progress further.”

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