A majority of local government pension schemes are considering local impact benefits when making decisions on what asset classes to invest in, a survey has found.
Sixty percent of respondents in an annual survey of 95 local government pension schemes (LGPS) practitioners in the UK said they are mulling further targeted investments through place-based investing to make a local impact.
The second LGPS investment survey was conducted by Room151, in cooperation with global investment manager Schroders.
Although LGPS practitioners were keen to achieve local impact through place-based investing, financial performances remained a decisive factor, with more than half saying that the performance of such investments must be competitive against similar global assets.
Only 5% of LGPS investors said they were willing to accept lower returns for local impact strategies compared to international investments.
Housing
Just like in last year’s survey, residential housing was the most popular local investment, with 86% of respondents expressing a preference for social and affordable housing for rent.
Although renewable infrastructure remained a popular sector for local investment, more than 60% said they were interested in emerging technologies such as hydrogen and battery storage, with close to half planning to invest in new solar and wind projects.
Despite this increased interest, close to three-quarters of LGPS practitioners lamented the lack of investable opportunities, with concerns about financial returns and cooperation with local stakeholders cited as major obstacles to increased local investment.
Overhaul
This year’s survey comes amid plans by the new Labour government to overhaul the scheme, in order to boost effectiveness and attract more investment to British assets.
The 2024 survey showed widespread acceptance of some form of fund consolidation but there was strong opposition to any mandatory measures from the government, whether on pooling or specific asset allocation. Over half of the respondents said fund mergers should remain voluntary.
On Thursday, UK media including BBC News were reporting the UK government plans to merge 86 council pension funds – which include £354bn (€287bn) in investments and are run by local government officials – into so-called “megafunds” run by fund managers.
“Further consolidation is anticipated and accepted, as is the desire to invest more in the UK, but you want this to be on your terms rather than being mandated,” Paul Myles, head of LGPS at Schroders, told an investment forum hosted by Room151 last week, where he presented the survey findings.
