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LGC’s regular special report

Is more infrastructure investment the way forward for pension funds? p16

The local government minister on public sector pension reform p4

Finding your way around unknown territory p12

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LGC’s regular special report

ContentsThe reform of public sector pensions is finally getting under way. Local government minister BRANDON LEWIS looks at the progress that’s been made, and what still needs to be done p4

We announce the winners of the prestigious annual LGC Investment Awards p6

In an uncertain world, managing investment risk has never been more challenging. ANNEMARIE ALLEN suggests how to build a framework to deal with uncertainty p12

When it comes to joint working, we really are all in it together. Senior managers from three London boroughs write about how their partnership initiatives are proving a success in practice p8

LGC’s award-winning director of finance PAUL KENT shares his experiences of running a successful pension fund, its approach to investment and risk and the future outlook p14

It has been suggested that pension funds should help the economic recovery by investing in infrastructure projects. Unfortunately it just isn’t that easy, writes CLIFFORD SIMS p16

After a number of years in successful and fulfilling posts in the public sector, TRACEY MILNER decided to change professional tack and move to AXA IM. She explains why p20

2 LGC Finance 13 December 2012 LGCplus.com

Research

Investment Awards

Investment Awards

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Terry crossleysupplemenT ediTor

‘‘ The implementation of the coalition agreement’s reform policies for public service pension schemes have been very much in evidence

13 December 2012 LGC Finance 3

Without question, 2012 has been a year of emerging reform for the Local Government Pension Scheme.

The implementation of the coalition agreement’s reform policies for public service pension schemes has been very much in evidence.

The smooth passage of the Public Service Pensions Bill and the progress towards finalising the new benefit structure design for the LGPS, hopefully by 2014, are clear indicators of the government’s intent. This requires, as always, a constructive response from all scheme interests.

This supplement contains a variety of thoughtful articles from several vantage points within the positive context set by local government minister Brandon Lewis and building, as he acknowledges, on the strong foundations laid by his predecessor, Bob Neill.

In addition to excellent examples of locally based initiatives in London and the delivery of a high-quality pension service by Dorset CC, the supplement contains a clear reminder about the need to deal carefully with risk.

The 2013 scheme valuation will hopefully be able not only to take account of the identified savings from the new scheme design, but also reflect a more stable global investment climate.

The need for a balanced and

prudent regulatory framework within which to develop investment strategies is considered, given that this may well be next in line for review by the government.

Finally, the very personal article by Tracey Milner on her career move from senior local authority pension fund stewardship to fund management reminds us all that it is the expertise and focus of individuals that gives the scheme the high-quality stewardship it deserves.

Looking ahead, the emerging corporate certainty being provided by the Pensions Bill, and the policy branding of public service pensions for the future, provides for the implementation of most of the Hutton-mooted recommendations.

While there is a clear policy intent to provide a national framework, with the statutory means to centrally control future costs, individual secretaries of state will have powers to provide bespoke regulatory frameworks for their sponsored schemes.

This is, of course, critical for the funded, locally governed and accountable LGPS. Ensuring the new scheme is affordable and viable, and better governed, remains the substantive, on-going challenge for scheme members, their employers and local taxpayers.

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The Local Government Pensions Scheme (LGPS) is one of the

largest funded occupational pension schemes in the UK and reform is essential.

Put simply, the cost of improving longevity has not been recognised in the past as fairly as it should have been, with the major burden falling on employers and taxpayers.

In 1997, employers paid £1.5bn into the scheme. By 2011, this had increased fourfold to £6.3bn. Over the same period, contributions paid by employees increased from £900m to £1.9bn. Redressing this balance so that costs are shared more fairly and, perhaps more importantly, ensuring this remains the case over time, is how we will protect the taxpayer against future cost pressures.

I must take this opportunity to thank my predecessor Bob Neill for getting the reform agenda to where it is today.

I must also pay tribute to the LGA and local government trades unions who have always been constructive and helpful in their discussions with the department.

It is vital that we continue to work together with the common aim of bringing forward a new scheme that is affordable, sustainable and fair to scheme members, employers and taxpayers, who ultimately underpin the scheme’s costs. We live in extremely challenging times,

A scheme fi t for future purpose Reform to the local government pension scheme is long overdue and the agreed changes are welcome, but more still needs to be done. BRANDON LEWIS explains why

and the reform of the LGPS is no exception.

I am sure there were those who, at the outset, doubted the project would ever get off the ground, but here we are approaching the end of the year with government agreement on the design of the new scheme and work well under way on issuing the first batch of draft regulations for consultation.

We are in a good place, although I do not underestimate the challenges that lie ahead between now and April 2014 when the new scheme will start.

Key areas of reformGetting the new regulations in place is only one piece of a complex jigsaw. The reformed scheme will not be judged a success by future generations if we fail to tackle other key areas of reform, including scheme governance, cost control and communication with the same vigour.

The Public Service Pensions Bill that is before the House includes provision for each of the 89 LGPS pension fund authorities to establish local pension boards to assist them in fulfilling their statutory duties under the scheme.

I believe this is long overdue. The new local boards, coupled with the provisions to extend the oversight powers of The Pensions Regulator to include public service pension schemes, can only help to raise the standard of

governance and cost control submitted by the LGA and local government trades unions. As part of these discussions, I also want to raise the question of how we can best represent the interests of the many sectors that participate in the scheme.

About 25% of the scheme’s membership is employed outside local government and we must find a way to ensure they have an equal voice on how the scheme is being run on their behalf and how their money is spent.

Neither can we ignore the income earned through investment returns in the funded LGPS in any

pensions’ administration and the local management of each fund authority. It will help to ensure a greater level of consistency across the individual pension fund authorities.

The bill also provides for the secretary of state, as ‘responsible authority’ for the LGPS in England and Wales, to appoint a suitably qualified body to oversee and report on the scheme’s valuation process.

Again, I see this independent oversight of the scheme’s stewardship as an essential ingredient of the reform process.

We are looking very closely at proposals on scheme

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FOTO

LIA

COMMENT PETER EERDMANS Co-head of Emerging Markets Investec Asset Management

Over the past ten years emerging markets have accounted for a growing proportion of global gross domestic product, but their proportion of global sovereign debt has fallen.

We expect this to reverse over the next ten years as developed markets de-leverage while relatively strong emerging market growth continues. We forecast the total global stock of government debt to increase, in real terms, by 21.5% to almost $70tr.

Emerging markets will account for 20.4% of this debt, from 16.2% at the moment. While this may seem large, the increase is in fact relatively modest: from 2002-12 we estimate that emerging market debt grew by 26.4%, while developed market debt grew by a staggering 70.9%.

Over the next ten years we expect China will double its stock of government debt to more than $4tr. With India and Brazil, these markets will account for more than 50% of the debt of what is classified as emerging markets. However, this rise will not be delivered by an increase in leverage but by strong economic growth.

We also expect the composition of that debt to change significantly. In line with the historic trends of mature debt markets, our forecasts show the average maturity of emerging market sovereign debt will

increase by four years, while the proportion of floating and inflation-linked debt will reduce.

We also foresee a decrease in the proportion of hard currency-denominated debt and hence an increase in the proportion of debt held by foreign investors. At the same time, issuance of corporate debt should soar as the private sector will be able to price their debt off local currency sovereign yield curves.

The development of these markets will be matched by changes to the traditional emerging market debt benchmarks. By 2022 we believe JP Morgan’s local currency benchmark will grow from 14 countries to 22, while the bank’s hard currency benchmark will increase from 48 to 55 issuers.

There is also much scope for international investors to increase their exposure to emerging market debt. The average allocation to emerging market debt among US, UK and European pension funds is 2.2%. Given that the total assets under management stands at $77tr, a 1% shift towards emerging market debt would result in $800bn inflows.

In line with their sustainable growth dynamics, we foresee emerging markets offering attractive debt investment opportunities.

The next 10 years in emerging market debt

COLUMN SPONSORED AND SUPPLIED BY INVESTEC ASSET MANAGEMENT. WWW.INVESTECASSETMANAGEMENT.COM

LGCplus.com 13 December 2012 LGC Finance 5

A scheme fi t for future purpose

discussion about the scheme’s affordability and fairness. In the funded LGPS, the investment income earned from the contributions paid by employers and employees help to defray the cost of the scheme to employers and taxpayers.

A focus on infrastructure We need to ensure the regulations governing the activities of pension funds do not inhibit legitimate and appropriate investments or the return on them.

With that in mind, I have recently asked scheme interests to comment on a proposal to relax the restriction on investments in limited liability partnerships that would enable fund authorities to increase their exposure to investments in infrastructure.

Investing in infrastructure will help to promote growth, both nationally and locally, and pension funds such as the LGPS must be allowed to enter the infrastructure market on terms that will enable them to earn a realistic rate of return with minimal risk. I am not convinced this will be the case without the change I am proposing.

It is, of course, only fitting that a local government minister should end on the subject of money. We know the cost of the new scheme falls within the 19.5% cost ceiling set by the

government, but that is not the end of the story. We need to ensure this cost discipline is maintained into the future to protect employers and taxpayers against unforeseen cost pressures and, at the same time, ensure employee contributions are maintained at a level to minimise the risk of scheme opt-outs.

We are looking very closely at the cost control proposal to ensure it can deliver what has been promised, but I am also determined to reach an agreed position on this key issue at the earliest opportunity. Delay here could put the agreed timetable at risk, which would be in nobody’s interest.

Pensions mean a great deal to everybody in different ways. Reform is never easy, particularly when it means tightening belts. But as John Hutton remarked in his final report, we have to find a better balance between what employers and employees are paying into the scheme, and I am convinced the reform journey we have embarked on will achieve that.

April 2014 is a very tight deadline, but if the past is anything to go by, I know you will all rise to the challenge with your customary vigour and determination to maintain the scheme’s status as a quality public service pension scheme.● Brandon Lewis is local government minister at the Department for Communities & Local Government


1

Each year the great and the good of the local government investment and pension fund manager community gather to celebrate those who have shown exceptional

achievement, with this year’s awards dinner held at the Royal Garden Hotel, Kensington on 11 December.

It was an opportunity for the industry’s key players to come together to recognise the most innovative initiatives and deserving individuals in the local authority pensions and investment sector.

Congratulations to all this year’s winners and finalists, who have worked extremely hard to out-perform expectation in difficult and volatile times.

Thanks, too, go to our sponsors, who make the event possible, and to our dedicated judges: Bill Roots, Peter Scales, Terry Crossley, Tony Charlwood and Karen Thrumble.

Top of their gameThe prestigious LGC Investment Awards are one of the highlights of the local government pension fund and investment management calendar. LGC reveals this year’s winners

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● LIFETIME ACHIEVEMENT - LOCAL GOVERNMENTWinner: Brian Bailey, former director, West Midlands Pension FundSponsored by: Aviva Investors

● FINANCE OFFICER OF THE YEARPaul Kent, Dorset CC pension fund administrator and lead pensions adviser to the Society of County TreasurersSponsored by: Newton Investment Management

● FUND OF THE YEAR OVER £2BNWinner: Merseyside Pension FundHighly commended: Cheshire West and Chester CouncilSponsored by: Newton Investment Management

● FUND OF THE YEAR OVER £750MWinner: The Dyfed Pension Fund, Carmarthenshire CCHighly commended: Norfolk CCSponsor: Neuberger Berman Europe

● FUND OF THE YEAR UNDER £750MWinner: The Lothian Buses Pension FundHighly commended: Waltham Forest LBCSponsored by: Threadneedle Asset Management

● LIFETIME ACHIEVEMENT - MARKETWinner: Jo Fidling, Insight Fund Management Sponsored by: Aviva Investors

● KNOWLEDGE AND SKILLS AWARDWinner: Newham LBCHighly Commended: Hackney LBC, Cheshire West and Chester CouncilSponsored by: Investec Asset Management

● CORPORATE GOVERNANCE AWARDWinner: LGSS Cambridgeshire and Northamptonshire CCsHighly commended: West Yorkshire Pension FundSponsored by: Newton Investment Management

● QUALITY OF SERVICE AWARDWinner: The Dyfed Pension Fund, Carmarthenshire CCHighly commended: West Yorkshire Pension FundSponsored by: Alliance Bernstein

● BEST RETURN ON PROPERTYWinner: Cardiff and Vale of Glamorgan Pension FundSponsored by: Aviva Investors

● BEST RETURN ON UK EQUITIESWinner: Orkney Islands CouncilSponsored by: Aviva Investors

If you would like to register your interest for next year’s awards, please email [email protected] or call +44 (0)203 033 2936

Research

Investment Awards

Investment Awards

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Teamwork matters

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8 LGC Finance 13 December 2012

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A CoMBined pension And treAsUrY FUnCtion – the tri-BoroUGh LGps initiAtive Achieving greater efficiency and value for money in the delivery of the Local Government Pension Scheme is one of the most pressing priorities for all local authority pension fund managers right now, writes Barbara Moorhouse.

For pension committees, employers and finance managers there are many pension priorities vying for attention.

Faced by fund deficits, we know that investment strategy is key. With returns under pressure, we aim to keep costs low. Governance is in the spotlight, promoted in part by Lord Hutton’s review into public sector pensions.

In the meantime, the pension policy agenda continues to evolve and we face the daily pressures of monitoring fund management performance, administering committees, communicating with members, doing the statutory accounts and so on.

For smaller funds, these competing priorities create real pressure on resources and levels of expertise.

Recognising this, the tri-borough initiative, a combined pension and treasury function between Westminster City Council, Kensington & Chelsea RBC

and Hammersmith & Fulham LBC identified a combined pension and treasury function as an obvious ‘early win’.

The benefits that we saw were:

1Expertise: with the growing complexity

of pension management and volatile markets placing a premium on effective investment management, real expertise is required across a greater range of issues.

In traditional structures, with limited numbers of staff, finding and keeping the necessary skills can be a problem.

2 Resilience: even with the skills in place, ensuring

continuity at all levels in small teams through holidays, illness and career changes is a challenge. Managing succession and keeping corporate knowledge is easier in larger teams.

3 Costs: building a strong team with across-the-

board capability carries a cost. For smaller funds, managing the growing pensions’ agenda cost-effectively is difficult.

The constraints this imposes may contribute to the view that smaller funds generally show lower returns than those that are larger scale.

4 Governance: moving to best practice in

administering funds,

supporting pension committees and managing operational delivery will require a further enhancement of the capacity of pension managers. This will also benefit from economies of scale.

So how have we approached things within the tri-borough arrangement?

We have combined our pension and treasury teams within Westminster under the management of one director. Having settled the operational arrangements to support the three councils, we are now looking at advisory arrangements,

hammersmith & Fulham LBC is part of the tri-

borough initiative

Senior managers from three London local authorities explain how they are putting in place innovative reforms around joint working, partnership and procurement – initiatives that may be able to provide best practice templates for other local authorities in the future

investment management procurement and supporting the three committees in addressing new pension requirements.

We see the potential for other local authorities to combine with us to extend this model and achieve the benefits we are beginning to realise.

While we expect funds and committees will remain separate, sharing knowledge and expertise among pension committee members could be helpful.

For authorities that have a smaller pool of financial expertise to draw on to

xx Month 2012 Local Government Chronicle xxLGCplus.comLGCplus.com 13 December 2012 LGC Finance 9

support pensions, this ‘peer relationship’ could be very valuable.

We recognise others are seeking more radical reform of the pensions’ landscape, for example a single pension organisation serving a large group of authorities or the merging of funds.

However, we see the challenge as meeting the need for increasing knowledge and expertise in a cost-effective way, achieving organic growth based on mutual agreements that respect the history of local government and the tradition of local accountability.l Barbara Moorhouse is chief operating officer, Westminster City Council.

A joint pensions’ AdMinistrAtion serviCe – CAMden And WAndsWorth LBCs On 1 October, Camden LBC and Wandsworth LBC joined forces to deliver a joint pensions’ administration service, a move we hope will save both councils £50,000 a year, writes Robert Claxton.

Those who know their London politics might find this marriage unexpected, but dig a little deeper and it is possible to see how well matched we are to one another.

The teams in both boroughs are fairly similar, sharing comparable membership numbers and costs per member (the cheapest and second cheapest in London on cost), with a focus on accurate pension liabilities calculated and administered at an even lower cost.

Detailed discussions between officers from both councils led to formal reports to the pensions and other governance committees at both authorities on a shared service being agreed.

Both councils agreed to progress the proposals and

delegated agreement of the detail to the respective directors of finance.

Wandsworth and Camden made preparations to run and accommodate the shared service, including the introduction of flexible working arrangements where staff can operate from either council premises or work from home and still access all key systems.

This ensures that the needs of employers and staff can be aligned to produce good outcomes for all.

A process to appoint the new head of the pensions shared service was undertaken in June and culminated in the appointment of Colette Hollands, the pensions manager at Wandsworth.

The outcomes expected from the shared service are:l that they will provide better resilience;l that both councils will be able to draw on the best processes from both teams;l that both will be able to make efficiencies in the administration process; andl that it will be possible to remain responsive to the

‘‘ There is going to be a single, high-quality service standard applied equally across the shared service

needs of the employers.In sum, the aim of the

merger is, very simply, to maximise value and efficiency without losing quality of the services provided.

That, of course, is an excellent aspiration, but how are we going to go about achieving this in reality?

We expect there to be more resilience because of the increase in skilled resource available to both boroughs.

Staff from Camden and Wandsworth now work for a common employer with a remit to serve both, so when one council has peak requirements the whole service contributes to the end result.

Similarly, skills are more widely spread, with more than one person able to assist on any area of work.

Importantly, the 50% of the job that is set in regulations with regard to responsibilities of employers (rather than the administering authority) are also completed as well.

How, then, are we going to make efficiencies?

Well, there is going to be a single, high-quality service standard applied equally across the shared service, with internal forms, letters, booklets and electronic material standardised to eliminate double handling.

Following that, some employer and administration tasks will only need to be performed once rather than at each authority.

Finally, system costs, including a single IT base solution, can be managed more effectively and economies are expected to flow from this.

Pensions’ administration services, of course, calculate, pay and manage expectations of pension benefits. These calculations are based upon complex interrelated

Wandsworth has joined forces with Camden to deliver a joint pensions administration service

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LGCplus.com10 LGC Finance 13 December 2012

legislation (acts of Parliament and regulations spanning more than seven decades) and source documents setting out employment and pay details.

The value of liabilities created by the shared unit is approaching £2bn and, accordingly, any proposals to obtain savings in the future must ensure that the accuracy of any liabilities created remains, as at present, pre-eminent.

Initial savings of £50,000 per annum are budgeted, but more is expected as the various workstreams mature.

The responsiveness of the service was critically important to both authorities, which placed high value on their pensions’ administration teams, particularly the human resource relationships at both policy and personal levels, ie, when dealing with staff.

This has been retained, including maintaining a local presence at both sites so that local needs are met.

Once the shared service is established it is hoped other funds’ administration functions will be attracted by the business model, so care has been taken in the shared service proposition to ensure the model is scaleable without losing the distinctive nature of the service.

To date, we have had interest from four other London boroughs, with two very keen to join and enjoy increased resilience, excellence in liability creation, reductions in costs and the retention of local priorities.l robert Claxton is head of pensions, payments and support, Wandsworth LBC

the pension FUnd ‘teAM ModeL’ – CroYdon LBCWhat has managing a pension fund got to do with football? asks Nathan Elvery.

Local authority pension

fund management is simple in concept but can have the tendency to prove as difficult to manage as a prima donna Premiership football team.

In its simplest form we need to keep a watchful eye on the growing liabilities, have our three-year exchange of views with our actuaries and then ensure we have the right balance of asset allocation within our funds to achieve the performance required to balance our deficits over the period we believe is appropriate.

OK, we all know it is not that simple – the variables are many and in recent times the assumptions we have come in many ways to rely on have lost some, if not all, of their correlation.

So it was clear to us we needed in these ‘different’ times to think ‘differently’.

Our solution has certainly been different – we have turned to football to provide,

for us, a template for a new way of thinking and delivering when it comes to pension fund management.

So, how does it all work? First, consider your pension fund as your football team, then consider your fund managers as your players and, finally, consider the final result on a Saturday afternoon as your triennial evaluation.

However, before you can seek an answer (or take to the pitch, as it were) it is vital you know the question you seek to answer.

I would argue you need to consider three fundamental questions:

1How can I improve flexibility of my fund in an

ever-changing market?

2 How can I maintain performance where

performance is forever shifting?

3 How can I keep pace with the market? Or, to

stick with our football analogy, how do we pick a team that is flexible, possesses pace and can out-perform to win the game?

For each asset class (for each position), Croydon has appointed up to three active fund managers (in effect our Premiership players).

Nothing new there, I hear

you say, but – and here’s the trick – in addition to the starting team we have put in place a ‘substitution team’ allowing the manager to make decisions routinely and regularly, based on Saturday’s performance.

In short, who gets to play and who does not?

We have all too often gone for medium- to long-term contracts with the market that restrict our flexibility and pace in movement. By using a framework contract we can move between fund managers through a period of notice rather than a period of procurement, enabling performance gains.

As the game changes you need to have the pace to move with it, increasing and decreasing your exposure when and where you need it; improving your ‘defence’ or ‘offence’ will be critical.

The Croydon ‘team model’ we have in place gives the flexibility, pace and performance to maximise the market opportunities and win the game.

We all, of course, recognise individual performance is not what matters but the performance of the team as a whole. This team model ensures you can have a single view of the team’s overall performance, not just your active manager ‘strikers’ or your solid bond ‘defence’.

Now imagine yourself not as a Premiership manager but as England manager Roy Hodgson. Just imagine you could embed this approach across a region of teams: just imagine if this same model could be achieved across London?

Ultimately, when it comes to securing pension returns and stability, it is not how many goals you score or how many you let in but the difference overall that wins the game. l nathan elvery is deputy chief executive, Croydon LBC

Croydon LBC takes a flexible approach to its pension fund

‘‘ The Croydon ‘team model’ gives the fl exibility, pace and performance to maximise market opportunities

ARTWORKER STUDIO CREATIVE SERV ART DIR/DESIGNER COPYWRITER CREATIVE DIR ACC MAN

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xx Local Government Chronicle xx Month 2012 LGCplus.com


As former US defense secretary Donald Rumsfeld famously said at the time of

the Second Gulf War: “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

Rumsfeld may have been notorious for his idiosyncratic use of language but, in fact, the above description isn’t that far off the mark in terms of how we in local authority pension fund management consider risk.

There are the risks we know, there are risks that we know we ought to know more about, and there are those we know we haven’t even thought of.

Moreover, if we take the Rumsfeld position as a starting point for looking at and managing risk in the Local Government Pension Scheme, it quickly becomes apparent it gives us a quite useful framework to build on.

For example, analysing and planning for your ‘known knowns’ can help you to put cushions and solutions in place, should a future risk arise. Seeking information on your ‘known unknowns’ provides you with the information you need to do the same.

Finally, putting these into action will help to put the employers and the fund in a better place to withstand any

Known unknownsThere are a number of different ways to analyse risk in the LGPS. Being aware of potential problems in the first place is a useful starting point, writes ANNEMARIE ALLEN

effects of the ‘unknown unknowns’ when they arise, as they inevitably will.

The key to risk control is, therefore, to turn as many unknowns into knowns that you can.

Knowledge is power and to be forewarned is definitely to be forearmed, by allowing you time to put your mitigating actions in place.

So what exactly do we mean by risk in the LGPS, and where do we start?

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Four of the largest risks could be seen to be:● reputational risk to the administering authority, for example the risk of a pension fund-related event bringing adverse publicity to the administering authority or council itself;● employer risk, for example the risk of an employer defaulting on its contribution requirement;● liability risk, for example the risk of liabilities

‘‘ Knowledge is power and to be forewarned is defi nitely to be forearmed, by allowing you time to put your mitigating actions in place


ALAM

Y

COMMENT MATTHEW GRAHAM Business development director, Aviva Investors

Local government pension schemes have faced the dual challenge of their assets coming under intense pressure from increased volatility and poor performance in equity markets at the same time as liabilities being exacerbated by record low gilt yields. In addition, austerity measures and the unknown consequences of the Hutton report have raised concerns over the future health of scheme cash flows.

Nonetheless, we believe schemes continue to be highly exposed to equity market volatility. On average, local authority pension schemes have a 61% allocation to equities1.

However, the recent Smith Institute report, Local Authority Pension Funds Investing for Growth, indicates there is strong support among councils for UK infrastructure investment as a source of long-term income streams – provided that appropriate rates of return and risk can be achieved.

Shifting sandsSince the financial crisis, local government pension schemes have increased their allocation towards mainstream alternative investments, with a fourfold rise since 2007, bringing the total to 8%1.

We believe this represents an increased focus on risk management as schemes diversify away from equities

and reduce volatility: trustees have viewed this as a way to lower risk without giving up too much in expected return.

This latter is particularly important given that UK government bond yields remain low. While liability matching is a crucial consideration for local authority pension schemes, many are understandably reluctant to increase their allocation to gilts at the current time.

In contrast, the secure, long-term, index-linked income streams provided by real assets such as social housing and infrastructure appear particularly attractive. Such assets can help tackle underfunding and provide cash flows that mirror liabilities.

We refer to real assets with these attributes as returns-enhancing and liability-matching (REaLM®)* assets. Their structure and profile are comparable to traditional fixed income assets. They can also offer excess returns over gilts, primarily as an illiquidity premium because they are comparably less liquid.

We believe local government pension schemes, as very long-term investors, are well placed to exploit the opportunities within real assets.*REaLM is a trademark of Aviva

Investors Global Services Limited1 WM Performance Services, second

quarter 2012

There are alternatives

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LGCplus.com 13 December 2012 LGC Finance 13

becoming greater than what is expected and which may be out of line with contribution plans for a variety of reasons; and ● investment risk, for example the possibility of investment underperformance.

All of these are, of course, interrelated and iterative. But if we can control, as far as possible, the third, fourth and second elements we can, in turn minimise the second and guard against the first.

Investment risks are largely covered by the controls in the investment regulations, good diversification, education of those taking investment decisions, the use of experts and monitoring and review of the fund’s investment strategy.

Liability risks include financial, demographic, employer, actuarial model and political, and can be affected by data quality, inflation, salary increases, discount rates, early retirement trends and other political and employer actions.

Employer risk can encompass the current or prospective risk of an employer being unable to meet its contribution requirements or to comply with the administration requirements of the scheme.

Employers, of course, cover a wide spectrum in LGPS pension funds. They range from large secure councils with thousands of members to small local charities with one remaining member and a large liability. Each will pose a different level of risk to the fund.

Tools to understand and manage the risks include employer engagement, by helping them to understand any potential financial consequences of their actions and working together to plan the management of their deficits.

Other tools include the triennial valuation, which allows liabilities to be reviewed every three years and experience to be analysed and checked, as well as making use of specialist consultants and advisers, who can help funds analyse risk and gather information so that informed decisions can be made.

The type of information can include mortality studies, cash-flow projections, ill-health monitoring, data cleaning and the analysis of employer covenant risk (including the identification of those employers most at risk).

Also vital, of course, is ongoing monitoring and the carrying out of mitigating actions to make sure plans and security are in place as far as possible to help those employers meet their liabilities over the longer term. This can be done, for example, by providing the necessary information so that any suitable deficit recovery periods can be set.

Good use of the funding strategy statement provides a further tool to assist each fund in joining all elements together.

So in summary, identifying your risks, gathering knowledge, use of knowledge, use of tools, monitoring and adapting to new events are key to managing risk, whether known or unknown.● Annemarie Allen is a consultant with Barnett Waddingham

‘‘ In LGPS pension funds, employers range from large secure councils to small local charities with one remaining member


1

The Local Government Pension Scheme (LGPS) in England is

big business. The latest Department for Communities & Local Government statistics1 give an aggregate market value of £148bn at 31 March, 2012, with investment income of £3bn in 2011-12 – 13% up on the previous year.

It is also under growing pressure. Liabilities are soaring2, contributions from employees are falling3, and funding levels are likely to be much lower by the 2013 valuation. Some funds are beginning to contemplate the spectre of negative cash flows in the not-too-distant future.

Of course, the economic crisis has played a major part in the relatively recent reduction in funding levels. But, in truth, reform of public sector pensions has been long overdue, with the need for pensions that are affordable and sustainable.

The sheer size of the LGPS has prompted some to think that pension funds are available to stimulate the economy, through additional investment in infrastructure or housing development. Others are looking to achieve economies of scale through merging funds. Others are looking to further regulate the administration of funds.

While these are all laudable, and in fact follow in the tracks of much of what the LGPS does already, we

Pensions - a view from the shiresLocal government schemes face exceptionally challenging times. PAUL KENT, LGC’s award-winning director of finance, explores the Dorset Fund’s approach and experiences

must be careful not to lose sight of the funds’ overriding objectives, including their fiduciary responsibilities, nor dilute their accountability to employers or local taxpayers.

So how do these issues play out at local level for us at Dorset CC?

The Dorset FundThe Dorset Fund was formed in 1974 and was valued then at £15m. On 31 March 2012, it was valued at £1.6bn. There are more than 100 employers in the fund, with around 23,000 contributors, 15,000 pensioners and 16,000 with deferred entitlements.

The fund is 79% funded4 with an average future service rate of 13.8% and 4.7% to recover the deficits on past service liabilities. There is an annual cash surplus of £34m, which is re-invested.

GovernanceThe fund is administered by a committee of eight elected members, a representative of scheme members and the fund administrator. It receives a range of specialist advice from external, independent experts to ensure compliance with the Myner’s principles, the Chartered Institute of Public Finance & Accountancy’s knowledge and skills code and the UK Stewardship code.

Full reporting is made to the full council and an annual general meeting of fund employers adds to

information on the internal and external audits and from the fund’s actuarial consultant. The fund’s administrator acts as the S151 officer to ensure proper arrangements for its financial affairs. These provide a bespoke, local, democratic scrutiny process for the Dorset Fund.

Investment and riskAs a relatively immature fund, the Dorset Fund can

Bonds

27.2%

25.5%

8.9%

5.2%2.9%

4.8%5.5%

20%

Absolute return funds

Property

Cash

UK equities

Private equity

Overseas equities

Diversified growth

afford to, indeed needs to, take some investment risk in order to meet the required return of its funding strategy. Our strategy is to hold a mixed portfolio of assets including equities, bonds and alternatives. Target allocations are shown in figure one, below.

Clearly, the fund would

accountability and transparency.

There is an annual publication of a statement of investment principles, a funding strategy statement and statements on governance compliance and communications.

An annual report is also published, that includes

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prefer to do this with the least risk. Diversification of asset allocation can reduce investment risk but still leave exposure to inflation and interest risk. Like most funds we are seeking to reduce volatility but not at the expense of returns.

As a result, the fund has recently incorporated an element of liability-driven investment to provide some degree of protection against inflation. Although we are

dorSet PenSion FUnd aSSet aLLoCation

xx Month 2012 Local Government Chronicle xxLGCplus.comLGCplus.com 13 December 2012 LGC Finance 15

Pensions - a view from the shires

£0

£5

£10

£15

£20

£25

£30

£35

£40

Black bars show outsourced members

average-sized in local authority terms, our performance is good, being around the top decile over the past three years.

The problem with merging funds is the level of diversification is significantly reduced. Also, merging funds creates an ‘average’ strategy rather than one tailored to the needs of local employers. While mergers may reduce the aggregate of investment costs, these savings need to be seen in the context of performance.

So, what about investment in infrastructure or housing? Can pension funds provide the catalyst for growth envisaged by the politicians? The short answer is yes, as part of a diversified portfolio and provided that the returns are commensurate with the risk. In fact, funds are already investing in some infrastructure vehicles, either directly or indirectly, although there are regulatory limits.

The key points are first, that pension fund investment should not be seen as a cheap source of funding – it isn’t. Funds will expect a commercial rate of return and have a duty to ensure that is the case.

Second, the scale and choice of investment should not disadvantage another part of the economy.

Third, I believe funds should avoid investing in

local projects to prevent a potential conflict of interest.

EfficiencyIt is reasonable to assume larger funds can achieve economies of scale.

In the south west, the region’s LGPS funds and the Environment Agency have put in place a seven-year framework contract that will provide a range of providers to deliver actuarial, benefits, and investment advisory services. The contract has been in place since 2011 and has already delivered savings in tendering costs estimated at around £200,000, with the prospect of significant savings (circa 10%) on future spend.

The latest CIPFA statistics show significant variation in pension administration costs. Figure two, above right, illustrates the cost per scheme member for both in-house and outsourced administration. This suggests that there may be some advantage in considering collaborative arrangements or merger on a local or regional basis.

Pensions reformIn terms of cost, the 2014 scheme implies an employer future service rate of 13%5, at least in the first instance, which compared with the Government Actuary’s Department estimate of 15.2% for the current scheme, suggests an average saving of around

2% of payroll. Unfortunately, for most local authorities the real ‘saving’ is likely to be much lower than this, given increasing levels of past service deficits. However, the position would have been worse without reform.

The futureMuch will depend on the UK economy and the debt crisis worldwide. Overall, though, I think the LGPS has proved its resilience.

And there is scope for optimism. Pensions’ reforms are generally positive and the LGPS can play a role in helping to stimulate growth as long as investment by pension funds is not seen as a cheap source of funding.

The democratic links we have in place and the representation of employers

and scheme members should not be discarded or diluted. Also, continued diversification is important to mitigate downside risk. Above all, funds and employees need a period of stability. Let us hope this will be possible.l Paul Kent is Dorset CC pension fund administrator and lead pensions adviser to the Society of County Treasurers

1 DCLG Statistical Release 17 October 2012 (SF3)2 In 2011-12, expenditure accounted for 74% of the LGPS income, up from 58% in 2007-083 Income from employees’ contributions fell by 6% between 2010-11 and 2011-12, reflecting a reduction in scheme membership of 66,000 or 4% over the previous March.4 At the 2010 Valuation.5 19.5% total cost less employee yield estimated at 6.5%.

LGPS admin CoSt Per member (inCL. PayroLL)

Admin cost per member:Dorset £18.97Club average £21.54Outsourced average £21.47In-house average £21.54

Source: Capita Hartshead Annual Pension Scheme Admin Survey 2010 Data for funds with more than 10,000 members

xx Local Government Chronicle xx Month 2012 LGCplus.com


The announcement by the Department for Communities & Local Government

on 6 November of its consultation document on infrastructure investments has been driven by the need to meet the demand from the Treasury for institutional investment in infrastructure.

The legal structure most commonly used for infrastructure funds, a limited partnership, is the focus of the consultation because the current LGPS investment regulations (which we shall refer to as simply ‘the regulations’) restrict funds from holding more than 15% of their assets in partnerships.

Many funds are at that limit already and therefore would have to disinvest from other asset classes in order to invest in infrastructure.

The consultation document only asks for views on quite a narrow question: should the limit on partnerships be raised to 30% or should infrastructure investments be carved out as a separate asset class with their own 15% limit (regardless of the legal structure used)?

Perhaps the more interesting question is one that has not been asked by the DCLG: are the regulations still fit for purpose?

The debate over the appropriateness of the limits in the regulations essentially boils down to a partly legal

How to build a brave new worldThe Treasury would like public sector pension funds to consider investing in infrastructure projects. CLIFFORD SIMS looks at the prospects for further reform within the LGPS

and partly philosophical question: in a post-Localism Act world (with its central presumption of the general power of competence) is it necessary or desirable for government to set investment limits for LGPS funds?

DCLG’s traditional response to this question is neatly summarised in the

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infrastructure consultation document: “By requiring that funds and risks are spread across a number of different types of investment, and setting limits on the proportion of funds that can be invested in each type of investment, the Investment Regulations help to minimise risk and protect the interests of taxpayers.”

Risk mitigationIt is undeniable that any form of asset allocation limits should help to encourage diversification and thus to mitigate the risk of asset class concentration.

However, the way the regulations’ limits work is by reference to a non-exhaustive list of investments (sub-underwriting contracts, bank


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COMMENT KEVIN CULLEN Relationship Manager, Local Authorities

Increased awareness of environmental, social and governance (ESG) concerns is creating exciting opportunities for investors. Not only is it increasingly viewed as a way to potentially generate alpha over the long term, but research suggests it may also help mitigate risk.

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Broadly speaking, ESG investing can be categorised into three generations. The first, which dates back centuries, is characterised by the concept of exclusionary screening – avoiding investing in companies whose products or services were deemed inconsistent with an investor’s values, for example related to alcohol, tobacco or weapons manufacturing.

The second generation heralded a more proactive approach, with positive screening for companies with a demonstrable commitment to ESG goals.

The third generation identifies companies expected to outperform over the long term, based on how they’ve embraced the concept of sustainability in their businesses.

By June 2012 figures, the global ESG market is estimated to be worth nearly £6.5tr. With Europe widely acknowledged as the global leader in ESG investing, at almost £4tr, the US is not far behind with nearly £1.9tr.

Macroeconomic drivers and opportunityDriving this interest are long-standing secular trends, such as the surge in the world’s population, scarcity of natural resources and effects of climate change. The world’s population is expected to balloon to 9.5 billion people by 2050, according to the United Nations. Most of this growth will take place in the developing world in nations already overpopulated and struggling with shortages of natural resources.

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13 December 2012 LGC Finance 17LGCplus.com

How to build a brave new world

deposits, loans, unlisted securities, unit trusts, OEICs, insurance contracts and stock lending), as well as to the legal structure of a partnership, which is commonly, but not exclusively, used for alternative asset classes, including infrastructure.

Restrictions on asset allocation or rules on maximum exposure to counterparties are common in regulated financial services entities; there is an obvious public policy incentive for banks and insurers not to fail. Likewise authorised investment funds (UCITS) that can be sold to retail investors are subject to asset allocation limits.

However, all of these institutions function against a backdrop of consumer protection. LGPS funds do not sell financial products, nor is the scheme open to the general public, so the LGPS does not need the sort of liquidity required by banks or insurers.

The other distinction here relates to the sophistication of the model that is used to stress-test banks and insurance companies whose assets are valued on a market-to-market basis to ensure that they do not fail.

But the LGPS limits only apply at the time of investment and do not carry an ongoing monitoring requirement.

The question of solvency (which is akin to capital

adequacy) of an LGPS fund is dealt with separately by reference to the setting of the employer contribution rates, and there is no linkage to the management of investment risk.

Taxpayer interestsThe DCLG’s other stated aim in maintaining the current limit reflects the fact the funds invested (or at least the employer contributions) are public money and the risk of loss falls ultimately back on the taxpayer. That is undeniable.

The corollary of this argument, however, is that if the limits were the only suitable prudential framework, they would need to be supported by the sort of rigorous approach to stress-testing that is applied in other contexts where solvency is key (see above).

An alternative to address this need for public accountability would be to use a different investment governance model.

The private sector modelReaders may recall that before the current regulations were enacted, a report was issued by the Chartered Institute of Public Finance & Accountancy in November 2008 that recommended that, while a robust regulatory framework was required for good

Continued overleaf

‘‘ It is undeniable that any form of asset allocation limits should help to encourage diversifi cation and thus to mitigate the risk of asset class concentration

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governance, the regulations lacked clarity and caused inconsistencies in practice. They were also criticised as out of step with wider investment market developments and techniques.

CIPFA also recommended the principles-based approach to regulation used in the private sector should apply to the LGPS.

The DCLG’s eventual consolidation of the regulations in 2009 made no fundamental changes to the governance regime. The latest consultation is also notably silent on governance.

So what happens in the world of private sector pensions?

Private sector defined benefit schemes have never had statutory restrictions. The Pensions Act 1995 made it clear that, while it was open to individual schemes to impose their own restrictions, the law functioned on the basic presumption that trustees should have the powers to invest that would be available to an absolute owner.

This is equivalent to the general power of competence that local authorities now have as a result of the Localism Act 2011.

The only statutory exceptions to this freedom are to ensure that Robert Maxwell/Mirror Group-type abuses were prevented by limiting investment in the sponsoring employer to 5% of the fund and to limit borrowing for temporary purposes and liquidity only.

The fiduciary principles governing private sector schemes were clarified by regulations made under the Pensions Act 2004 to reflect the requirements of the IORP directive. The central investment requirement is

“to ensure the security, quality, liquidity and profitability of the scheme as a whole”.

The other fundamental reform for defined benefit schemes made at the time was to link funding and investment, so that trustees must invest by reference to the “nature and duration of the expected future benefits payable under the scheme”.

Finally, schemes must avoid a concentration of exposure to particular assets, issuers or counterparties and the accumulation of risk in the portfolio as a whole. Are these principles so very far from DCLG’s concern to minimise risk?

Governance and the billThe regulations currently contain two basic parameters within which governance is exercised by administering authorities when making investment decisions. These are the requirements to have a statement of investment

principles and for the authority to take “proper advice” when appointing fund managers, reviewing its investments and investment policy and when taking advantage of the increased limits, which are reflected in Schedule One.

The Public Services Pensions Bill will add to this investment-specific framework a requirement on pension board members to have such knowledge and understanding of “(a) the law relating to pensions and (b) such other matters as may be prescribed” properly

to exercise their functions.While the second part of

this formulation obviously provides scope to extend the requirements to investment matters, it is perhaps odd that the opportunity was not taken in the drafting of the bill to make this point expressly, at least in the case of the LGPS (clearly there is no need in an unfunded scheme).

In the private sector, trustees who are subject to the equivalent requirement of knowledge and understanding are expected to know the law relating to pensions (and trusts), as well as the principles relating to funding and investment.

Finally, there is the question of advice. The bill does not impose requirements to appoint professional advisers in the way that trustees in the private sector must.

In reality, of course, LGPS funds do make extensive use of external advisers but the current regulations allow an officer of the authority to provide “proper advice” as well. The concept of an authority advising itself in relation to investment matters is, to say the least, a logical challenge to what is generally understood by ‘advice’.

I would imagine that given the focus on conflicts of interest elsewhere in the bill, this provision will come under scrutiny at some stage in the parliamentary debate.

Given the success in governance terms of the private sector approach and the desire expressed by LGPS funds to be able to invest more flexibly, which the DCLG has now recognised in relation to infrastructure, it would be welcome if the DCLG would grasp the nettle of reforming the regulations as a whole. ● Clifford Sims is a partner at Squire Sanders (UK) LLP

‘‘ The concept of an authority advising itself in relation to investment matters is, to say the least, a logical challenge to what is generally understood as ‘advice’

Continued from previous page

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‘‘ It was suggested that I apply for a vacancy as principal accountant for the pension fund. I thought that the role would be boring. I couldn’t have got that more wrong

When the editor of this supplement, Terry Crossley,

asked me if I would be interested in contributing an article looking back at my time in local authority pension fund management and my transition over to the private sector, I jumped at the chance.

Why? There were many reasons, including the fact that, now that I am six months into my new role, I saw this as an opportunity to show my former friends and colleagues out there in the local government community that I haven’t forgotten them and, I hope, that they haven’t forgotten me – even though in many respects I see my pension fund and treasury chums more often now than I did before.

Secondly, and perhaps more importantly, I saw this article as an opportunity to reflect back on the past six months and offer what I hope will be a valuable ‘compare and contrast’ between life on the one side at Surrey and now at AXA IM on the other.

How, then, did I end up spending 20-odd years at Surrey CC?

I joined as a reasonably fresh-faced graduate with no

Two sides of the same coinAfter a successful career in local government finance, TRACEY MILNER decided to move over to the private sector. She explains what lay behind her decision

firm long-term career planning but an idealistic outlook and a preference for working in public service.

With a degree in economics and a love of both numbers and writing, accountancy was the way forward for me.

The job market in 1991 was tight but there were a number of opportunities in local government finance and I was lucky to be offered a trainee accountant role at Surrey quite soon after I had knuckled down to the application process.

Having qualified in 1994 I moved into a financial planning role with a focus on council tax.

Those days of responding to taxpayer queries and complaints about their council tax certainly prepared me for the subsequent interest from the TaxPayers’ Alliance into the impact that the Surrey Pension Fund had on their council tax.

I have very fond memories of one lady who wrote to us every year without fail: her envelopes were covered with the key points that she would make in the enclosed letter, with each one written in a different colour.

I didn’t receive a letter one year and came to the sad

▼

conclusion that she must have passed away.

The move into pensionsIn 1999 my colleague Mike Taylor – now the chief executive of the London Pensions Fund Authority – suggested I apply for a vacancy as principal accountant for the pension fund.

My initial reaction was entirely negative – for some reason, I thought that the role would be boring. I couldn’t have got that more wrong. I absolutely loved it and over time it evolved to give me more responsibility and accountability for the fund, as well as a wider management role on the finance leadership team at Surrey.

My gratitude goes to Mike for ‘gently’ persuading me to apply for the pension fund role and I still look to him for his advice and mentorship.

Given that I loved the role so much, why did I leave? It is nearly a year since I first got the call about an opportunity at AXA IM.

I must admit the timing was great, given that I was feeling a little restless and moving into what I shall call a bit of a mid-life crisis (according to the latest


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longevity estimates). I was en route to the Local Authority Pension Fund Forum conference in Bournemouth when I got that first call.

The more the recruitment consultant described the role (without telling me where it was) the more I thought this is something that I would like to do.

It had crossed my mind in the past that I might move over to the ‘dark side’ at some point. Also, I knew I did not want my next move to be promotion into a S151 role – I wanted to stay in the pension fund environment and the

logical step would be to take my knowledge and experience into the ‘sell’ side. I also needed a new challenge. This, clearly, was it.

Why AXA IM? When I had been persuaded this was a role to consider, the recruitment consultant then outlined who had recently joined the company, so I put two and two together and concluded that it was AXA IM.

The deciding factorsThe first big draw was, therefore, the people. As I said in my leaving speech at Surrey, we spend such a high proportion of our time at work – I certainly saw my immediate and wider team there as a family.

Having great people around you who get you through the ‘business as usual’ as well as the highs and, more importantly, the lows is critical.

Secondly, the business. I found the opportunity appealing, however I must admit my only exposure to AXA IM had been via a tender submission back when the Surrey Fund was restructured in 2004.

As one of the top 15 asset managers (by assets under management) in the world AXA IM had recognised that concerted efforts should be made to develop the UK institutional business.

There was also a need to hire somebody who understood the Local Government Pension Scheme

environment, given the commitment to the sector.

The third draw was the strength and depth of resourcing – we are a multi-expert house with coverage of all of the major asset classes. If I were to sum up my view of AXA IM before I started I would say ‘punching below our weight’. The drive and ambition of the team is clear.

We are there to be a trusted, long-term partner to our clients. It also means that, with my focus on the LGPS, I am still a member of that family.

When I was offered the role, having had eight separate interviews (although I think that I interviewed them, to be honest) it was a bit of a no-brainer.

2012 therefore, for me, would not be memorable for the Olympics or the Jubilee celebrations: it was going to be my year of being brave.

One of my favourite quotes is from Erica Jong, a US writer who could give Fifty Shades of Grey’s EL James a run for her money (and since you’re asking, I gave up the latter after a chapter because of the quality of the writing) “...if you don’t risk anything, you risk even more”.

So, what were the highs and lows at Surrey? Oddly, I struggle to come up with many stand-out moments, which I hope suggests that there are many highs of equal weighting in my mind.

However, winning the LGC Fund of the Year Award in 2010 at our first attempt

comes top of the list. I made the effort that year because the fund’s performance had been the best I could remember.

Also, I wanted to make a stand for those of us who had kept our eye on the long term rather than reacting in a knee-jerk way to market conditions and the associated pressure from employers to justify the approach.

The most painful pension fund annual general meeting I ever had to present to was in 2009 when there were many questions about the fund’s approach to hedging overseas currency exposure.

In contrast, the 2010 AGM was something of a breeze.

Downs as well as upsThe lows? There were some very dark days in the aftermath of the collapse of the Icelandic banks. I remember feeling quite alone, vulnerable and responsible when the news first broke but the sense of relief when it became clear that it wasn’t just us helped enormously. We had done nothing wrong and we were all in it together.

The first meeting of the Icelandic creditors group was memorable – there were so many tired, anxious faces on show but it was clear that, collectively, we were going to fight to get the at-risk money back into our accounts.

My thanks to the LGA, Bevan Britten and Nick Vickers of Kent CC in particular for contributing so

‘‘ It had crossed my mind in the past that I might move over to the ‘dark side’ at some point. Also I knew I did not want my next move to be promotion into a S151 role – I wanted to stay in the pension fund environment

13 December 2012 LGC Finance 21

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much to make the return of the money happen.

So, how to compare life at Surrey and life at AXA IM? When I was in the midst of the recruitment process I spoke to some chums on the fund management side for advice.

I was warned of various things that would challenge me. These are the top three:● The commuteI have learned to use the time wisely: by catching up on emails on the train followed by a brisk walk to the office at St Paul’s from Waterloo (although The Archers podcast doesn’t see me through the walk as it used to).● Completing tender documentsNo comment, other than I apologise to anyone who submitted an RFP (Request for Proposal) to Surrey and was thrown out at the first hurdle. So much work goes into completing these documents, which are not one-size-fits-all, often to no avail.● Client relationship management systems (CRM) Again, no comment other than to say: “Come back SAP, all is forgiven.”

There are, of course, other things I could mention but six months in, I have found my way around enough to know where to get help when I need it… and I channel my inner Malcolm Tucker as a coping mechanism when battling with our CRM system.

Looking forward, what are the challenges facing the LGPS?

Stating the obvious, there is a massive agenda: auto-enrolment, implementing the 2014 scheme, including the governance implications, how to deal with the potential fall-out from the new scheme (for example, opt-outs and resultant cash-flow implications) and the 2013

meeting of the CLG investment regulations review group. At the time, the two biggest concerns were the limits on partnership investment and the lack of clarity on whether LGPS funds could use derivatives. Plus ça change.

It is gratifying to know the time spent on that working group was not wasted, although it is a frustration it has taken so long for something to happen that is now clearly driven by other external considerations.

Finally, in my new role I was recently hosting a meeting of one of the

regional pension fund manager groups.

In return for the hospitality we were able to give a brief ‘lunchtime learning’ session on a particular asset class.

I asked those attending for reasons why they hadn’t considered this particular investment approach. I had identified a few possible answers, such as not relevant, don’t understand it and so on, but the one that hadn’t occurred to me – but the one that inevitably that came up – was “too busy”.

I think that sums up the challenge faced by all those involved in the LGPS today.● Tracey Milner is local authority business development manager at AXA Investment Managers and was formerly pension fund and treasury manager at Surrey CC

The opinions expressed here are the views of the author and do not constitute investment advice. This is not a recommendation to purchase, sell or subscribe to financial instruments, an offer to sell investment funds or an offer of financial services. Ref 16247, 5 December 2012.

‘‘ What are the challenges facing the LGPS? There is a massive agenda: auto-enrolment, implementing the 2014 scheme, how to deal with the potential fall-out from the new scheme…

Life at AXA IM has offered different

professional challenges

valuation, to name but a few. If that wasn’t enough, the

week in which I wrote this saw the announcement that updated LGPS investment regulations are to be consulted on in the light of a drive to increase pension fund investment in infrastructure, an issue Clifford Sims at Squire Sanders addresses elsewhere in this supplement (see p16).

That announcement, for me at least, brought back memories of a cold and snowy day in early December 2010 when Terry Crossley, Clifford Sims and I, among others, had the inaugural

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And, with a wealth of resources and research capabilities supporting them, they’re encouraged to follow their convictions wherever the most promising opportunities arise.

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

To find out more, scan the code below with your smartphone or visit our site.

1Source: Invesco Perpetual as at 30 September 2012. Where Invesco Perpetual has expressed views and opinions, these may change. Further information on our products is available from us at Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH. Invesco Perpetual is a business name of Invesco Asset Management Limited. Authorised and regulated by the Financial Services Authority.

LGC 11.12.12

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LGC’s regular special report · xx Local Government Chronicle xx Month 2012 31 March 2011LGC...

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Transcript of LGC’s regular special report · xx Local Government Chronicle xx Month 2012 31 March 2011LGC...