Over the last decade the LGPS’s assets have under-preformed the major UK and global equity and bond indices: passive investing would have been more rewarding. The only winner has been the industry, garnering over £4.5 billion in reported fees which, as a percentage of asset market value, have more than doubled over the last decade. In addition, this paper estimates unreported fees, including performance fees paid to alternative assets managers, to be between £3.6 billion and £4.6 billion.
The ongoing exercise of asset pooling will not place the LGPS on a sustainable footing because the anticipated cost-savings will have little material impact, given the scale of the deficits. Dramatic simplification of the LGPS is required. The local architecture should be swept away and replaced with asset pools and specialist investment vehicles with their own independent governance committees. Scheme governance, involving over 1,500 people, is devoid of accountability, characterised by an abject lack of curiosity. This is allowing scheme members’ and taxpayers’ contributions to be eroded by unnecessary, high and recurring fees.
The report includes 15 proposals for reform, including requiring all of the LGPS’s actively managed listed assets to be replaced with passively managed (index-tracking) funds; disciplining the funds’ internal audit functions, and putting the proposed LGPS asset pools on notice that, for five years from 2018, they will be in a performance-based competition, before being whittled down to three much larger pools.Read Full Report