LGPS investment into UK needs to become more ‘effective’ – Elwell
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Many UK investments by Local Government Pension Scheme funds are not currently “additive”, the chief executive of pool Border to Coast has said, arguing that pooling can help partner funds invest in the UK more effectively.
In May last year, Border to Coast launched a UK Opportunities fund with £500m committed by partner funds, in response to a challenge by the 11 funds about how the pool could support local investment.
The new UK fund aims to deploy capital into opportunities that will have an impact and that are additive, while focussing on financial returns, said Rachel Elwell speaking at a conference about productive investment organised by the Government Actuary’s Department on Wednesday. The pool is now working through appointing managers, creating special management accounts and co-investment to get capital working.
These investments are being made in the context of about £12bn the partner funds, which together hold £65bn, have invested in the UK in total, she noted.
However, Elwell criticised the pension funds’ existing UK investment allocations: “A lot of that is not necessarily currently additive. And I do think one of the most important things that pooling can do is to help partner funds actually think about deploying capital into the UK more effectively.”
Doing so is anything but simple, she said: “If this was just a case of encouraging pension schemes to invest more in the UK, then mandation would work. But I personally don't think mandation does work, because this is about making the UK somewhere that one can actually invest.”
She blamed slow planning permission and regulation, echoing the current government’s agenda. Elwell, who is also a board member of the Investment Association, used the word “safety-ism” – used by the chief executive of the same lobby group – to describe a risk-averse approach by “a number of different regulators, both financial services and others”.
The government recently wrote to regulators including the Pensions Regulator and the Financial Conduct Authority to ask them how they can support economic growth. The FCA has already made some proposals including relaxing affordability tests for people taking out a mortgage. However, its chief executive Nikhil Rathi previously warned that if government and society want less regulation, they will have to accept that “things can go wrong”.
In May last year, Border to Coast launched a UK Opportunities fund with £500m committed by partner funds, in response to a challenge by the 11 funds about how the pool could support local investment.
The new UK fund aims to deploy capital into opportunities that will have an impact and that are additive, while focussing on financial returns, said Rachel Elwell speaking at a conference about productive investment organised by the Government Actuary’s Department on Wednesday. The pool is now working through appointing managers, creating special management accounts and co-investment to get capital working.
These investments are being made in the context of about £12bn the partner funds, which together hold £65bn, have invested in the UK in total, she noted.
However, Elwell criticised the pension funds’ existing UK investment allocations: “A lot of that is not necessarily currently additive. And I do think one of the most important things that pooling can do is to help partner funds actually think about deploying capital into the UK more effectively.”
Doing so is anything but simple, she said: “If this was just a case of encouraging pension schemes to invest more in the UK, then mandation would work. But I personally don't think mandation does work, because this is about making the UK somewhere that one can actually invest.”
She blamed slow planning permission and regulation, echoing the current government’s agenda. Elwell, who is also a board member of the Investment Association, used the word “safety-ism” – used by the chief executive of the same lobby group – to describe a risk-averse approach by “a number of different regulators, both financial services and others”.
The government recently wrote to regulators including the Pensions Regulator and the Financial Conduct Authority to ask them how they can support economic growth. The FCA has already made some proposals including relaxing affordability tests for people taking out a mortgage. However, its chief executive Nikhil Rathi previously warned that if government and society want less regulation, they will have to accept that “things can go wrong”.
Can a pool speak for all its partner funds?
Elwell said one key benefit of pooling is having a “collective voice”.
“Whether that is how we are seeking to influence on responsible investment matters, our impact when we're engaging with companies for whom we now have a material investment, whether that's in the collaborations that you see with policymakers, those things have been really important. And that is an area that our partner funds will point to when they're asked what value has Border to Coast brought,” she said.
The partner funds are, however, not always speaking as one when it comes to investments, she revealed: “Whilst our partner funds kind of describe themselves as like-minded, they're not really. They all have different investment beliefs, they all have different funding levels, they all have different cash flow requirements, some of them have different responsible investment beliefs.”
She said these differences have meant the pool needs to offer investments that enable scale while simultaneously allowing funds to express their beliefs and respecting their accountability to local taxpayers.
“Whether that is how we are seeking to influence on responsible investment matters, our impact when we're engaging with companies for whom we now have a material investment, whether that's in the collaborations that you see with policymakers, those things have been really important. And that is an area that our partner funds will point to when they're asked what value has Border to Coast brought,” she said.
The partner funds are, however, not always speaking as one when it comes to investments, she revealed: “Whilst our partner funds kind of describe themselves as like-minded, they're not really. They all have different investment beliefs, they all have different funding levels, they all have different cash flow requirements, some of them have different responsible investment beliefs.”
She said these differences have meant the pool needs to offer investments that enable scale while simultaneously allowing funds to express their beliefs and respecting their accountability to local taxpayers.
