LGPS facing govt pressure to drop active fund managers

The Local Government Pension Scheme (LGPS) has said that it is facing pressure from the government to stop using active fund managers, following the Woodford scandal.

An executive of the UK’s largest public sector pension scheme told the Financial Times that analysis from Hymans Robertson in 2013 had found that the scheme could save up to £230m a year in investment fees and £190m in transaction costs if it dropped active managers.

LGPS advisory board secretary, Jeff Houston, stated: “There are elements within government that want the LGPS to be passive and are trying to find a way for that to happen. There is a belief we are forgoing savings by not going passive.

“Things like Woodford come along and you get that knee-jerk regulatory reaction…the easiest thing is to just stop them having that ability to invest in actives.”

Earlier this year, fund manager Neil Woodford was forced to cease trading on his £3.7bn Equity Income fund after the Kent County Council Pension fund withdrew a £236m investment in the fund.

Houston added: “Understandably there are people within government going why haven’t you done that [move to passives].”

If the LGPS were to cease using active fund managers, the biggest losers would be Baillie Gifford, which runs £25bn in LGPS assets, followed by Schroders on £16.3bn, while the biggest winners would be Legal & General, which runs £69bn of assets within passive funds, followed by BlackRock, which runs £16.5bn.

The LGPS fund has around £275bn in assets across 6 million members and has 60 per cent of its holdings in active funds.

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