By any estimation, the Local Government Pension Scheme is not running as efficiently as it could and  it should. Split into 86 administrate units each running their own pot , it is supposed to get investment resources from 8 pools of excellence. These pools range from asset managers , like Border to Coast, that manufacture their own investment solutions to toothers that are no more than procurement practices for third party funds, offering due diligence and fee discounts.

The use of these pools varies between the administrative units. The FT runs a useful reckoner which allows you to see how much of your local authority’s money has been pooled and to what extent its pension administrators continue to take decisions on their tod.

I was shocked to find that mine (City of London) only uses the pooling service for 20% of its assets

The FT allows you to compare and contrast. Some authorities are committees to using the pools, one (Kensington and Chelsea) doesn’t pool at all, most grudgingly use the pools while continuing with investment agreements negotiated by themselves which rely for VFM on the offices of consultants and some peer group benchmarking to get best price.

Commentators as diverse as John Ralfe and Chris Sier point out that this is not the way to get best value and as the estimated 0.5% of assets that is paid away to fund and asset managers is picked up by councils an ultimately council tax-payers, this is a burning issue. There are many councils that are paying over the odds for membership of LGPS because costs are not being optimally managed.

But it is not just the price paid for asset and fund management that is in question. The allocation of assets has meant that many council pensions are paid from returns generated abroad, especially from investment in the equity of publicly listed companies in world markets. This has been a very successful strategy, especially when pursued on a passive basis where fees are low. As well as being the most averse to pooling , Kensington and Chelsea is the best performing Local Authority fund, it uses passive investment into world markets.

But here is the snag. By divesting from home markets and not investing in UK private markets, LGPS stands accused of creating the under-performance in the UK markets and indeed the UK economy which politicians see as the root cause of Britain’s economic stagnation. It is not just politicians, read yesterday’s blog on this matter.

A lack of focus on home markets has been justified on performance grounds – greater diversification can be achieved from world markets, but it has become self-fulfilling, By starving UK markets of cash from LGPS, the pools are being held as partially responsible for the relative under-performance UK markets have shown.

Edi Truell has a remedy published in the Financial Times. As the former chair of one of the eight pools now known as LPPI, said that pooling had not gone far enough.

“Each LGPS has kept a team in place to allocate the bulk of its assets but not all assets to the pool — in many ways it adds just another layer of management which is inefficient,”

Truell suggests consolidation into two “super pools” managing all of the LGPS assets — which would generate “at least £1.3bn” in additional cost savings as the 86 individual funds would be wound down.  These “super pools” would also have greater heft to get access to the best deals in private markets while also driving more investment into British infrastructure.

Will Rachel Reeves ask for more from LGPS, as her predecessors have done, or will she demand more, with menaces escalating to mandation?

The answer will depend on her assessment of the capacity of LGPS to reform itself. Having witnessed the marketing of funds directly to Local Authorities for a number of years, I think that the system is entrenched. To get people out of the trenches and using the pools, we need better pools (and better inevitably means fewer). We need to work out what good looks like (I think it looks like Border to Coast) and we need a new impetus.

The current impetus to consolidate investment through the pools is insufficient to meet the demanding targets that Reeves is setting. I think she will have to do more and exercise the same shock and awe tactics on LGPS , that she used in the budget. I don’t see her holding back.

We will hear about her intent at this week’s Mansion House speech, a speech which many in the fund and asset management industry will be awaiting with some trepidation.