LPFA proposes wider partnership model in response to consultation on the future of the LGPS
The London Pension Fund Authority (LPFA) is proposing a wider solution to the issues raised by the Department for Communities and Local Government’s consultation “Opportunities for collaboration, cost savings and efficiencies”.
Sir Merrick Cockell, deputy chairman of the LPFA, says: “The consultation rightly identifies the need for change, but wrongly prescribes a narrow solution. We believe that the single asset class CIV proposal would create a new tier of entities and attendant bureaucracy without proper incentives to focus on the underlying liabilities.
“LPFA strongly believes an Asset & Liability Management (ALM) Partnership model would be the optimum structure with which to reduce costs and give direct access to classes of investment like infrastructure and housing which better match fund liabilities. This would increase the chance of maintaining stable contributions and eliminate deficits over time. Our model can happen within existing legislation and we are already working with like-minded funds to develop a partnership.”
The LPFA’s ALM partnership model, if widely adopted, would deliver the same economies of scale while ensuring the assets selected (listed and alternative) were chosen precisely for the consolidated liability set of the partners. This integrated approach to asset and liability management would retain local accountability and give scope to enhance and rationalise governance under new Pension Board arrangements.
National, single-asset class CIVs also miss the opportunity to pool, develop and enhance the existing investment teams of LGPS administering authorities. In the ALM partnership model, extensive recruitment and proliferation of stand-alone entities is avoided, making best use of existing public sector resources.
LPFA believes the long term interests of the LGPS will be best met by allowing authorities to set up multi-asset, collective arrangements with strong internal management capabilities which best meet their investment needs based on their particular aggregate liability profile.
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