Members of local government pensions should feel a little confused by the headline. Taking risk means possibly losing, you hope to win more than you lose but you have no guarantee that there will be no consequence from failure.
You either support a team or you don’t, we can’t all support Paris St Germain on the basis that they won the European Cup last year. We chose to invest our time in local clubs hoping that in doing so, we see better football than if we turned our backs on them.
I suppose that we will consider an investment in American technology stocks as “safe” until it isn’t , they fall away and are replaced by something else. Tech is today’s PSG
PSG will not be the best team in Europe forever. France will not always beat England in major football championships , we stick with what we are a part of and hope that we will win the World Cup in the not so distant future.
Most people would be appalled to think that their money was invested in America but increasingly that is the case. I think most people in pension schemes expect their schemes to lose as well as win and would be surprised to hear the experts arguing that a home investment should only be made if guaranteed to do no worse than the best. I hear the experts statement as
When asked whether they wanted their money invested with their home team, experts said “yes we do” – but we want a guarantee that we will win.
This is from an article in Pensions Age
Industry backs LGPS local investment if returns are unaffected
By Callum Conway
Pension professionals support encouraging Local Government Pension Scheme (LGPS) funds to invest locally, but only where this does not compromise member returns, according to polling from the Society of Pension Professionals (SPP).
The polling, carried out during an SPP webinar on key developments in LGPS funding and governance, found that 59 per cent of respondents supported the government’s proposed obligation for all LGPS funds to have a high-level objective on local investments, if there is no impact on investment returns.
A further 19 per cent said they supported the proposal regardless of the impact on returns, meaning 78 per cent of respondents expressed support in principle.
However, almost a quarter (22 per cent) raised concerns about the plans.
This included 10 per cent who said the definition of ‘local’ was too narrow and should instead include UK-wide investments, while 12 per cent said investment decisions should continue to be based solely on risk, return and environmental, social and governance (ESG) considerations.
The SPP said the findings suggested that, while the pensions industry is open to supporting local investment initiatives, protecting members’ financial outcomes remains the overriding priority.
SPP Public Sector Committee deputy chair, Tim Domanski, commented:
“This SPP polling demonstrates that pension professionals recognise the value of encouraging investment that benefits local communities, but not at the expense of members’ returns”.
Wanting your home team to win
We have become fascinated by our capacity to access any market on a hedged of unhedged basis. We can invest without knowing where our money’s going , only that it meets the aims of the fund we invest through and wins.
Betting on every team will guarantee having a winner of any “world cup” but to no end. The value of following your home team in a world cup is to help it do a little better!
We back the home team and one day we know it will be 1966 again!
The LGPS is a lot of local schemes each with its home investment teams and were all investments local, then the overall fund would grow by the average of each local area’s returns. Ironically, the worst performing areas are most in need of capital to restore productivity and employ more people. The most wealthy areas have less incentive to invest locally.
An example is Kensington and Chelsea’s section of LGPS which invests around the world with no home bias at all. It does very nicely out of this, it does no good for Kensington and Chelsea, but they don’t need investment. It takes glory in the money it has won by letting its participating employers pay nothing as contributions.
This looks to me as the rich looking after themselves and putting nothing back into our society. I suspect that in time this decision will come to haunt Kensington and Chelsea.
To me, the pooling of the wealth of rich authorities with the poverty of others should lead in time for an improvement for everyone. I would like to see rich boroughs investing where the money is most needed, where there is most opportunity to make a difference and create socially and economically, a difference.
This would not harm the pensions paid , these in the LGPS are guaranteed by the council tax-payers around the country. It might mean that in the short-term, the cost of pensions might increase to councils, but when unproductive areas were turned around, then a fairer system that was good for all, would follow.
I write this as our next Prime Minister looks to devolve power to local areas. I hope we can see that principal be taken up further by LGPS, even if it means returns are impacted in the short-term.
