The £32.6bn (€38.5bn) Central asset pool that eight UK local government pension schemes (LGPS) are forming is aiming to increase direct property investment at the expense of indirect holdings and to invest more in infrastructure.
As a pool, LGPS Central has some £2bn of property holdings, including direct and pooled funds.
It is aiming to scale back its indirect property investments to grow direct property assets.
This will be achieved partly as a result of closed-end funds held by a number of the pool members coming to the natural end of their lifetime, with the money returned to be invested into direct property.
Colin Pratt, investments manager at Leicestershire County Council, the administering authority for the Leicestershire Pension Fund, said: “It’s more likely to be a natural wastage-type development and taking advantage of market liquidity as and when that exists within open-ended property funds.”
The other local authorities whose pension funds are participating in the LGPS Central pool are Cheshire, Derbyshire, Nottinghamshire, Shropshire, Staffordshire, West Midlands (West Midlands Pension Fund and the West Midlands Integrated Transport Authority) and Worcestershire.
The switch from indirect to direct property investment is expected to contribute to cost savings, which have been estimated to reach £29m per annum as at 31 March 2033, 15 years after the date the pool goes live, in April 2018.
As concerns infrastructure, the pool has a target asset allocation of 3.8% as at 31 December 2015 but is aiming to grow this to at least 5%, “but up to 6% or 7% estimated”, depending on each of the participating pension fund’s investment strategy.
As at 31 March 2015, the pool’s committed allocation to infrastructure, both directly and indirectly, was 1.8%, on a weighted average.
This is according to the pool’s recent submission to the UK government, which states that a number of the participating funds already have plans to review and increase their allocations.
“Two Funds have no current allocation but are starting to assess the potential strategic value of the asset class,” it said.
“The target allocation is based on data gathered from each fund regarding their potential appetite for infrastructure.”
The pool noted that that actual investment is “substantially” below the strategic allocation and that this is due to “the difficulty in achieving meaningful investment over a short time frame”.
“Lack of attractive investment opportunities may result in funds changing their views on the strategic importance of the asset class in meeting their funding and cashflow requirements,” it said.