A set of guiding principles for governance of the local government pension scheme (LGPS) investment pools have been published.
The 68-page guidance produced by the Chartered Institute of Public Finance and Accountancy (CIPFA) in conjunction with Aon Hewitt sets out what the 90 administering authorities should focus on when adapting their governance arrangements to pooling.
Getting the governance structures right will be one of the biggest challenges for the £217bn scheme as its funds prepare to start transferring liquid assets into eight proposed vehicles from April 2018.
Each pool operator will likely be overseen by a board or committee of individuals collectively representing the administering authorities in a given pool, also known as an oversight committee.
The most likely option is this would be a local authority joint committee, which would consist of at least one representative from each administering authority.
The guidance said each authority should review its own internal governance, ensuring any oversight committee meets best practice governance, and that the pool operators meet best practice governance.
It will be extremely important to have the right kind of relationship between the authorities within a given pool. The guidance says relationships should be managed by "robust and appropriate mechanisms".
It may also be necessary to mutually establish policies for issues such as responsible investment, corporate governance, voting rights and cost management. While it may be that common policies cannot be agreed in all circumstances, the guide said it is crucial the collaborative ethos is kept by having policies at a high enough level.
CIPFA adviser for pensions and treasury management Neil Sellstrom said: "Regardless of the investment structures and operating arrangements, administering authorities should continue to demonstrate strong governance in the management of LGPS funds.
"The establishment of investment pooling will present a new environment which will require a review of existing internal governance to update policies and create appropriate oversight arrangements."
Aon Hewitt head of public sector investment consulting Dave Lyons said while it is crucial the pools are robust, effective and well managed, it is equally important this is also the case for these new formal and informal relationships.
"That way it can be assured that no stakeholders are left behind on the long journey ahead and potential conflicts of interest are recognised and managed effectively."
Squire Patton Boggs partner Clifford Sims provided legal guidance.
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