Report highlights benefits of pooling pension assets for LGPS

Pooling of local government pension scheme (LGPS) funds in the UK can drive further value in the future, according to research from NMG Group.

LGPS: Pension Pooling in the UK, which was commissioned by seven UK LGPS pools to look at markets where pooling was more advanced, said benefits of pooling for LGPS funds included better long-term performance after fees, improved control over investments, an enhanced approach to responsible investment and reduced costs.

For example, larger pools were found to generally benefit from greater bargaining power with asset managers, with many respondents agreeing that reaching around US$100bn assets under management allowed pools to access investments in asset classes and strategies that could not be accessed previously.

Having this amount of weight behind the pool was also seen to allow them to insource certain investment capabilities where they could realise benefits.

Additionally, large pools indicated that their scale had been useful in securing partnerships and negotiating improved management fees, though it remains a challenge for large pools to find enough quality asset managers to manage a considerable and growing pool of assets.

The research noted that there was not a ‘best way’ to pool but did identify that one of the key ingredients for success was establishing clear divisions of responsibilities, and simplified, flexible decision-making.

Additionally, it contended that examples of successful pooling often saw the development of agreed long-term strategic asset allocations, which are reviewed annually or less frequently, as well as highly professional management.

LondonCIV CEO, Mike O’Donnell, said: “Pooling is really delivering in the UK – with the pools up and running and good progress on transitioning the assets. This is therefore an ideal moment to plan for our next phase of development and our continued collective success.”

Boarder to Coast CEO, Rachel Elwell, commented: “This research gives us powerful insight into how we can deliver even greater value for the LGPS over the long term. More importantly, it gives each pool and their partner funds insight into, and understanding of, how pools have thrived internationally, which will allow them to make the right decisions for their own individual journeys.”

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