Louis-Paul Hill, Associate Partner at Aon, said: Hot on the heels of the recent consultation encouraging the LGPS to invest more in private equity and levelling up, the Chancellor has now confirmed an intention to require LGPS Funds to report on the breakdown of their asset allocation, including to UK equities, with the expected revised Annual Report guidance due by April 2024.
|
He also said that the Government will review what further action should be taken if this doesn’t lead to UK equity allocations increasing.
“We would point out that LGPS funds tend to have a much higher allocation to growth assets such as equities, than their private sector counterparts, due to their long-term nature and the security both of employers and of benefits for members. However, while it is true that funds’ allocation to UK equities may well be lower than Government would like, and is likely to have fallen materially over time, it’s important to consider why that is the case. Funds invest in order to deliver the benefits to members cost-effectively for their employers, which means investing to generate the best risk-adjusted returns. UK listed companies make up only around 4% of the total global equity market and UK equities, as measured by the FTSE-All Share index, have returned around 7% per year on average compared to 10.5% per year from the MSCI All World Index over the last 20 years - and/or an average of 5% per year compared to 13% per year over the last 10 years. This supports Aon’s, and many LGPS funds’, preference to invest globally through considering a global investment opportunity set.”
Mary Lambe, Head of LGPS Governance at Aon, added: “Reporting on the percentage allocated to UK equities won’t, of itself, change investment behaviour and from a governance perspective, nor should it. As noted in our response to the recent consultation “Next Steps in Investment”, we don’t believe Government should be mandating how LGPS funds invest, and it is not clear how that fits with the fiduciary duty of Pensions Committees.”
|
