The idea of ​​LGPS not investing in the UK is for the birds

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Before Room151 Private Markets Forum At the London Stock Exchange, the director of the South Yorkshire Pensions Authority talks to Aysha Gilmore about how LGPS funds can get the government’s push to invest locally.

The government is keen to push for further LGPS investment in UK assets, as Jeremy Hunt’s spring budget statement illustrates.

The recent push for funds to invest locally has been fueled mainly by the publication of the Level Up White Paperin which the UK government sets out the ambition of LGPS funds to have up to 5% of their assets invested in “projects that support local areas”.

However, George Graham, director of the South Yorkshire Pensions Authority, argues that the notion that LGPS funds have not invested or do not want to invest in the UK or UK companies is “for the birds”.

He highlighted that the South Yorkshire Pensions Authority, with £10.4bn of assets under management, has invested 10% of its fund in UK equities, with “significant investment in UK properties, close to around £600m of pounds sterling”.

He told Room151: “The idea that we’re not investing in the UK is for the birds and actually I’m not sure we want to do much more overall. what we [South Yorkshire Pensions Authority] what we are doing is moving money within the UK so that it has a bigger impact.”

Graham will discuss leveling up and local investment in Room151 Private Markets Forum in London on June 21, 2021.

Room151 LGPS Private Markets Forum
twenty-one^street June 2023, London FREE for LGPS practitioners

SPEAKERS – DIARY – RECORD

Impact Investment Portfolio

To address the aim of achieving local impact, the South Yorkshire Pensions Authority has launched a Place-Based Impact Investing Portfolio. The portfolio aims to deploy £500m of capital to the region over the next five to ten years, representing 5% of the fund’s assets.

Announced in March, the portfolio focuses on long-term local investment and has five elements, comprising local development loans, housing, specialized housing, local venture capital allocations, as well as private equity and private debt investments.

“The focus of the portfolio is on particular goals within the Leveling Up White Paper, so it has some elements on housing standards, retrofits, supporting local economic growth, and physical capital for businesses, such as business development loans,” he said. Graham.

“We have tried to create a coherent policy chain from the things the government says are important to address regional inequalities in the white paper, to the agreed priorities for South Yorkshire, to the things we can invest in.”

Graham highlighted that the South Yorkshire Pensions Authority measures portfolio impact through metrics such as the number of new homes or affordable housing developed and the number of new jobs created.

“So those are easily understandable metrics for members of the scheme, which is important as we’re making these investments on their behalf.”

Local investment risks

When asked if there is a high risk associated with local investing, Graham suggested that it presents much the same risks that LGPS investors face with any investment. “You just have to understand what [the risks] they are in front and enter them with your eyes open,” he added.

He stressed that investors can mitigate those risks by finding people who understand them and can help funds manage them.

Graham also stressed that meaningful analysis as part of the due diligence process for investments is also “key” to determining whether the scheme will be viable and generate returns.

However, when asked whether LGPS funds should invest more than 5% of their assets within the local area, Graham noted that the South Yorkshire Pensions Authority has “got to the point where we have made as much money out as possible of listed assets and we have moved to private market assets”.

Graham added: “In our view, investing in South Yorkshire to the greatest extent that we can within an overall risk management approach and the limits of our broader strategy makes sense.

“We seek to have 33.5% of the fund in alternatives in the future and only 38% in equities. I think that is as far as we can go, given that we are an open scheme and still need growth assets to a significant extent.”

George Graham will speak at Room151 Private Markets Forumwhich will also provide information on net zero opportunities in private markets, private debt and housing investments.

If you are interested in registering for the conference, you still have the opportunity to join us and you can register here.

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