Commenting on the Chancellor’s proposals to change how the Local Government Pension Scheme invests, Philip Pearson, Partner, Hymans Robertson said:

“With the government announcing a consultation about its ambition to double existing LGPS investments in private equity to 10%, it is important to note that private equity is already playing a big role in the portfolios of long-term investors like the LGPS. Responsibly managed private equity investments can have significant positive impacts in the communities in which they are made, such as job creation and the promotion of innovation. LGPS funds are generally alert to these benefits and many funds are already invested.

“However, external directives on asset allocation may backfire, leading to poorer outcomes for scheme members and sponsoring employers. Private equity is higher risk than most other asset classes, so sizing the allocation for an individual fund requires careful consideration of its objectives, risk appetite and interaction with the rest of the portfolio.

“We generally recommend investing via global private equity mandates as this typically leads to superior investment outcomes. UK private companies are able to secure funding from these programmes if they offer prospective returns which are competitive globally. But we also believe there is a case for allocating a percentage of capital committed to smaller companies located in the UK regions, opportunities which may historically have fallen below the radar of the major global private equity houses.”