Local Government Pension Scheme (LGPS) assets could be partially reshored to help fund key urban regeneration projects, independent pension consultant John Ralfe says.
The latest of a series of ‘purpose of finance' webinars by Pension Insurance Corporation - titled Levelling up in 2023: Can it be kick-started? - looked at whether were options for local authority schemes to fund key urban regeneration projects, creating jobs and social value - asking if salvation could come from partnerships with long-term institutional investors.
Speaking on the podcast, Ralfe talked about how the LGPS was invested - noting his surprise that so much of the scheme's £4-500bn of assets was invested overseas.
He said around 75% of LGPS holdings were in return seeking "risky" assets such as equities, property or private equity but noted much of this was held overseas - adding that even moving a small amount of this back to the UK could be significant for local economies.
Ralfe noted: "About 40% of the risky assets are overseas. If you move that from 40% to 30%, you're talking about bringing back billions back to be invested in the UK - around £40bn - without undermining UK companies."
He added: "It doesn't seem to right to me that the Staffordshire Pension Fund, for example, has more invested in Silicon Valley than it does in Stoke on Trent."
Ralfe said such a transition wouldn't happen overnight but said "there was a lot to play for" should LGPS funds move a small percentage of their assets back to the UK to invest in projects that both genuinely made sense for the pension scheme and in terms of regenerating local economies.
Despite this, however, Ralfe warned that while the principle of using LGPS assets as a potential source of funding for local regeneration projects was a good idea, LGPS assets were not "free money" and was there to pay pensions.
He said: "There are a lot of people in the LGPS, both current employees and former employees, all expecting their pensions to be paid. So we need to be very cautious about the idea that somehow we have just found a ‘pot of gold'. To the extent money can be diverted to build back better, it has to be with very, very clear rules and regulations."
He said a good project would have to be something that was mature, meaning the high-risk start-up phase had already happened - also warning against vanity projects.
Ralfe said: "There is an argument that the difficulty is not finding money, it's finding good projects to put that money in… The last thing you want to end up doing with it is putting it into questionable projects."
He added the corporate governance around these projects was "very, very important" - a necessary condition of investment for pension schemes.
Ralfe concluded: "It takes quite a lot of people, to winkle out these opportunities, and to make sure that they are as good as they appear to be."
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