Localising pension fund investments – new SPERI report published today
SPERI today publishes a new report by Dr Craig Berry (Reader at Manchester Metropolitan University) which explores the prospect of UK pension funds localising their investment strategies. The report ‘Localising pension fund investments; Engaging with stakeholders, overcoming the barriers’ is the culmination of a project, funded by the Barrow Cadbury Trust.
Since the 2008 financial crisis, UK policy-makers have looked to pension funds to contribute to an investment-led economic recovery. However, there have been few substantive policy changes to support this agenda, and little attention has been given to the prospect of pension funds localising their investment strategies. The project investigated the reasons behind this and explored the potential for local authority pension funds and private sector pension funds to contribute to localisation in investment practice. Dr Craig Berry, Tom Hunt and Dr Adam Barber worked on the SPERI project which you can read more about here.
The project findings are drawn from new SPERI research and from a series of seminars held in late 2017 and 2018 with stakeholders and experts in three English city-regions: Manchester, Sheffield and Birmingham. Participants included local government officials, economists, local business and civil society leaders, and finance and investment professionals (including pensions industry representatives).
The project report makes a range of suggestions for policy and practice.
- A genuine, place-based public investment programme should be established by the Treasury, which pension funds can cohere around.
- Greater thought is required, by the Ministry of Housing, Communities and Local Government, about the implications of pooling for locally-oriented investment strategies among local authority pension funds.
- Both departments need to consider whether metro-mayors have sufficient powers and capacity to contribute to the localisation agenda, and the Department for Business, Energy and Industrial Strategy needs to consider whether the British Business Bank could engage systematically with pension funds.
- The Department for Work and Pensions needs to ensure that pensions regulation (such as valuation cycles) does not discourage local investments, reconsider whether the National Employment Savings Trust (NEST) can further localise its investment strategy, and explore how the barriers to collective defined contribution provision can be overcome.
- There is scope for metro-mayors and combined authorities to think more strategically about the operation of local authority pension funds. Mayors should also be looking to mediate between private sector pension funds and potential investees in the local economy, and if necessary push for greater devolution of fiscal powers to fulfil this function effectively.
- Large employers need to take their role as local anchor institutions seriously – and this role should be reflected in their pensions practice. They should also seek to survey members more extensively on investment preferences – an initiative NEST could also undertake.
- More generally, all relevant stakeholders (including trade unions) should consider whether local investment strategies might be best realised away from the formal processes of pensions saving.
The project also suggests that priorities for further research in this area include:
- Developing a ‘census’ of the pensions capital created in the private sector across different localities and regions, and how it tends to be invested.
- Understanding the investment strategies of large defined contribution scheme providers.
- It will be vital also to explore the capacity of local authorities to engage with private sector pension funds.
The project benefited hugely from partnerships with the Greater Manchester Pension Fund, the All-Party Parliamentary Group on Local Authority Pension Funds and Birmingham City Council.
Sadly, Kieran Quinn (then leader of Tameside Metropolitan Borough Council and Chair of the Greater Manchester Pension Fund) died during the course of this project. This report is dedicated to Kieran, and his pioneering work on pension fund investments in Greater Manchester. A short article about Kieran’s work by Andy Rowe can be found below.
BUILD THE FUTURE
Andy Rowe. Former Project Manager to Cllr Kieran Quinn as Chair of the Greater Manchester Pension Fund, and Leader of Tameside Council
I worked with Kieran Quinn for the last two years on developing a strategy to promote the work of the Greater Manchester Pension Fund (GMPF) and the pooling of pension funds in the North West, and wider across the UK. The former Chancellor George Osborne created a platform for UK Pension Funds to ‘pool’ their investment funds for possible infrastructure works and to work together.
Kieran and I discussed future plans for funds to play a much more active and visible role in infrastructure development on affordable housing and rail in the UK. He was a man of vision and lots of intellect. He thought through his project steps and he had many new ideas for outcomes and delivery.
There is nothing new in pension funds investing in infrastructure as the Australian, Canadian and American funds have demonstrated over the past 30 years, greatly benefiting the beneficiaries of these funds. Ranging from roads, bridges, schools, rail and station hubs the scope and scale of infrastructure opportunities are wide.
GLIL was one of the first infrastructure vehicle partnerships, established by the London Pension Fund Authority (LPFA) and GMPF in 2015. It arose from a conversation between Sir Merrick Cockell, Chair of the LPFA, and Kieran where both funds agreed to put in £500M each, which attracted other pension funds as the development progressed.
The fund has invested in infrastructure including a wind farm in Ayrshire, and the purchase of trains for Abellio.
Kieran’s philosophy included a social weave in the fund’s developments, not only to invest, and return a profit for the pensioners within the fund, but also to do some local and social good.
This could be manifested by local employment and training for apprentices on construction sites working on the fund’s projects. Kieran was seeking to draft a Construction Charter working with the trade unions to underpin this. As part of this thinking I researched and worked with the unions to jointly develop a Construction Charter that would uphold both the fund’s financial returns and benefit the workers on the sites.
Affordable housing was one of Kieran’s big projects. Having developed a working financial model (Matrix Homes) and built multiple plots of affordable homes for local people across Manchester in partnership with the Council, the Matrix model was ready to showcase to other Funds to build more affordable homes across the North West and Yorkshire. The model was flexible to adjust the financial model to suit different funds and councils and was ready to scale up with more partners.
Kieran was keen to get involved in infrastructure on rail and he had started a conversation on future rail and investment to utilise new technologies by talking to partners in Liverpool and Leeds.
Creating viable employment, investment in youth training and building the fund was all part of the strategic and promising reach he offered. Above all creating viable partnerships with other pension funds and working with the private sector as partners was the legacy that Kieran leaves behind.
*Disclaimer I do not now work for GMPF, or have any connection to their current strategy now, or in the future.