Pooling journey only just beginning: key highlights from the LGPS Pooling Symposium
March 31st has come and gone, but the LGPS Pooling Symposium made one thing clear: for the LGPS, this is a starting line, not a finishing line
In any major reform to a sector, deadlines play a curiously critical yet perhaps overly unnuanced role in proceedings. While they suggest a definitive end of a long journey, in truth this process is far more complicated. And in the LGPS, this is no different.
It was something made very clear at this year’s Pooling Symposium, with one speaker even describing the March 31st deadline as a “starting line, not the finish line”.
Pooling is a journey, not a destination
Many echoed this sentiment – with the main focus on March 31st being to get the legal and structural aspect of pooling sorted and, where needed, onboarding new funds into the pool.
Other aspects – such as asset transitions, its advisory teams and partner fund engagement – have extended beyond this. This slower process is, by and large, deliberate. As one speaker explained: “This is not a transformation in one go.
“This is a journey that’s ahead of us, and all of these things that will change in terms of splits of responsibility between asset allocation, strategy, implementation, manager selection, cash management, governance advice and strategic advice will happen, but it’s not happening in a big bang situation.”
As for where everyone is along the road – what was clear was that, while no one that has made it to the finish line in terms of how their pool is shaping up, some are closer than others.
One pool, for example, described itself as facing a “true startup challenge” inheriting almost nothing on the investment management side – having to build a team from zero, and design an operating model with a blank sheet of paper.
Panellists also set out a rough realistic timeline for when everything would be ready – with it taking roughly 12 months for most in the industry to a complete the foundational operating model, anywhere between 18 months and two years for asset transition, and three years before reaching a steady-state business as usual.
This timeline fits with the consistent message from across the pools to prioritise safety over speed – doing so when and only when they have their structures and systems in place.
What is “local investment”?
Of all the reforms that have been brought to the LGPS over the past few months, I don’t think there’s one that has led to more debate in recent memory then the definition of local investment.
Now, however, it seems there is at least a modicum of clarity on how the sector will approach the issue of local investment, with most pushing for flexibility rather than rigidity because – as one speaker pointed out – if they do that, then they’re going to miss out on opportunities that help meet their local investment objectives.
This has led to several approaches on this front, with most pools favouring a flexible tiered definition of local – reporting their local investments across different levels, typically a local or “hyper-local” tier, a regional tier, and a national or UK-wide tier. These sit alongside pool-wide projects.
In future, according to another panellist, there could also be room for more cross-pool collaboration – like the much-cited example of GLIL as a proven model on how funds and pools can collaborate.
One chief executive framed the priority for cross-pool collaboration as the sector’s identity. They explained: “I think the first area to collaborate is around building the brand and the LGPS.
“I think we really need to work together to pick up the whole scheme, because if we continue to try and compete, that’s not going to lead to a good outcome.”
As for the type of local investment most of the sector is looking at, housing was – by some distance – the most discussed topic throughout the two days, with several reasons being cited as why investment in this space would be particularly compelling.
Firstly, that political alignment appears to be unusually strong in this space, with government, mayoral authorities and pension funds all pulling in the same direction.
And then there’s the returns, which can be attractive across different points of the capital stack.
There’s also a range of markets pools and funds are already investing in, including build-to-rent, co-living, and urban family housing.
The other forms of local investment discussed also took on an infrastructure-led tilt – with social infrastructure projects such as care homes, health centres, and GP surgeries flagged as options.
Outside this, opportunities in data centres, battery storage, and renewable energy more broadly are being seen as viable.
Competition for talent
Recruitment was another key topic of conversation, with it being seen a consistent practical challenge – although pools are taking different approaches to growing their teams.
One pool has hired 80 people around the April deadline, building entirely new teams across advisory, local investment, alternatives, risk, legal and compliance, while another grew its headcount by less than 15% – despite a significant number of funds having joined its pool.
There are several roles that pools are finding harder to fill – such as private market specialists, those with advisory and implementation service experience, as well as compliance and second-line risk.
And, when it comes to recruiting this talent, they have two very difficult issues to overcome. The first is that they’re not just competing with other asset management companies – but with each other, with this interestingly being where most competition between pools sits.
The second is that, while it may be less so, pools are still constrained by the public sector nature of the work – and are therefore competing on something other than headline pay.
Speaking on their recent hires, one chief executive said: “They want to build. It’s not about money.
“They’ve got a growth mindset, and they see the opportunity here to do so differently.” This approach to hires is key because, as the pools acknowledge, they cannot match commercial asset managers on the remuneration front.
It comes as regulatory interest in the sector is adding a sense of urgency to the hires, with one chief executive describing a visit from the Financial Conduct Authority (FCA) which saw it assess everything from recruitment to succession planning, with regulators also said to be focused heavily on culture.
LGR reform
Pooling didn’t happen in isolation. While the April deadline absorbed practitioner attention, three other reform programmes were progressing in parallel – local government reorganisation (LGR), devolution and the broader productive finance agenda.
The most pointed comment came in response to a panellist who had expressed hope for a period of stability, responding by saying rather bluntly: “My hope has already been smashed against the wall by LGR and devolution.
“I’m talking to a number of funds at the moment – one part of its LGR might bring in a council from another fund. I’ve got another one where devolution might create a strategic authority with a council that is in another fund.”
They also flagged another issue – that they are dealing with different parts of the Ministry of Housing, Communities and Local Government (MHCLG) separately on the pooling, LGR and devolution agendas.
LGR reorganisations could also bring councils from one pool into authorities sitting within a different pool’s footprint. Devolution, meanwhile, could create strategic authorities that span councils belonging to multiple pools.
The Pooling Symposium made clear that March 31st was a starting line, not a finish line, with most pools expecting 12 months to bed in operating models, up to two years for asset transitions, and around three years to reach business as usual. Throughout, the consistent message was to prioritise safety over speed.
On local investment, the sector is favouring flexibility over rigid definitions, with housing dominating the discussion thanks to strong political alignment and attractive returns. Social infrastructure, data centres, battery storage and renewables were also flagged as compelling opportunities.
Talent has emerged as a major challenge, with pools competing against commercial managers and each other for specialists they can’t always match on pay – leaning instead on the appeal of building something new.
Adding pressure, LGR and devolution are reshaping fund boundaries in parallel, leaving the sector concerned that it’s being asked to absorb too much change at once.
