Ahead of the Local Government Pension Scheme (England and Wales): Next steps on investments consultation closing, Hymans Robertson warns that the consultation’s implication that there’s a single approach to pooling represents a risk to funds. In reality, funds can currently access a variety of approaches. These provide a range of benefits in areas such as governance and value for money. The leading pensions and financial services consultancy argued that if a single approach is taken, it could lead funds to experience a number of issues around risk, performance and the inability to address their individual needs.

Commenting on the importance of funds being able to access a variety of approaches when it comes to pooling, David Walker, Chief Investment Officer, Hymans Robertson:

“It seems clear that the consultation is implying that there is a preference for a single approach for pooling funds. This isn’t the case in the current pooling environment, and we believe it would be detrimental to the funds for this to be encouraged.

“Currently, the pooling landscape gives funds access to a range of alternative approaches which have all demonstrated benefits across governance, excellent value for money, outstanding performance and the ability to access a range of asset classes. Focusing on one approach could result in a concentration of risk and inhibit LGPS funds from implementing strategies that meet their individual needs. The proposal that pools should be the source of advice to member funds on their investment strategy, for example, would replicate the traditional fiduciary manager model which is known to create conflicts of interest and is something the CMA sought to address in its 2019 review.

“Pooling continues to present opportunities for LGPS to use their collective scale to develop innovative and effective investment solutions. This is reflected in the work plans for all the pools, regardless of structure. We believe that further opportunities will be developed under current structures, with this consultation providing additional momentum and focus.

“So, while we feel the proposal to accelerate and expand pooling is a good thing, we only support specific parts of the consultation and are supportive of the continuation of the current varied, not single, approach.”