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One of my aims in taking two days out to attend the PLSA Local Authority Pension Conference has been to gain an insight into the things that matter to those who run our local pension funds

The overwhelming impression I get is one of pride that LGPS came through the annus horribilis of 2022 relatively unscathed. Much of the talk has been of the uplift funds have received from relatively high exposure to private markets, where assets, while more expensive to research, can return positive performance when all asset classes seem to be in decline in unison

The Foresight Group presented expertly on their work creating a regional fund that allowed institutional clients prepared to invest , to access the kind of growth opportunities that are being championed by the Tony Blair Institute, the City of London Mayor and by both the shadow and actual Chancellor of the Exchequer. Indeed Rachael Reeves has now become the poster girl not just for this kind of investment but for its mandatory introduction. This is a bit tough on her, she merely said that “nothing was left out” in Labour’s deliberations on introducing a mandatory 5% allocation to private markets.

And herein is the problem that LGPS faces. It has been for some years , been encouraged to be a part of the levelling up agenda and funds have been requested (rather than required) to find local opportunities for investment. This has meant that the pools outside of London have had to go looking for opportunities such as presented by Foresight.

And this has resulted in a considerable increase in investments in private markets from the LGPS, an improvement seen nowhere else in pensions (especially not in the virgin territory of DC workplace pensions.

However, this increased allocation – despite the positive impact it is having on scheme returns, despite it help the 97 LGPS funds demonstrate levelling up, is leaving many of the delegates I have spoken to , uncomfortable.

Opinion seems split as to whether a nudge will become an obligation and whether the mandation of allocation to local investments is around the corner. I sense that some LGPS fiduciaries would welcome mandation , if only that it transfers some of the risk of things going wrong , from them to a Government. You can almost hearing delegates preparing their “I told you so” declarations in readiness for something going wrong.

And we all know what can go wrong. Ask Kent with Woodford. A badly executed illiquid strategy , whether investments are held directly or via an intermediating fund management can deliver lasting reputational risk and create a hole in the fund that may have to be plugged by increased call on sponsors.

The call on greenbelt – the call on pensions

While delegates ruminated on the risks they were being asked to take, there were further calls from politicians for intervention from Local Authorities to solve national problems, this time the housing crisis. The Telegraph report that Labour would order councils to offer green-belt land for development as part of a plan to solve the housing crisis within 10 years, Lisa Nandy has spelt this out while reiterating Labour’s plans to make sure pension schemes helped.

Putting up new houses where local residents have had right of access to walk dogs and enjoy uninterrupted rural views may be the right thing to do, but it created fresh tensions for Local Authorities and by extension their pensions who become the financier of last resort.

There is a danger, one that I heard articulated three times yesterday, that political interference could yet snatch victory from the highly successful investment strategies of the Local Authorities Pension Funds and turn it to political rather than social gain.

Political interference is a hot topic at the PLSA Local Authority Conference