Pools apart: accountability fears dominate LAPFSIF February
Mounting pool accountability issues, warnings on the US economic outlook, and a growing appetite for emerging markets were among the key topics discussed at this year’s LAPF Strategic Investment Forum in February
The changing relationship between funds and pools emerged as one of the most contentious topics at the LAPF Strategic Investment Forum (LAPFSIF) February, with mounting concerns over accountability as pools replace consultants as the primary source of strategic investment advice.
The conference, held at the Fairmont in Windsor, united LGPS asset owners and allocators for two days of sharp debate and fresh thinking.
A perceived lack of accountability was raised as one of the bigger issues during a longer-than-scheduled discussion on the topic.
It discussed how, while funds remain accountable for outcomes, they are, in some cases, losing some influence over the advice that drives those outcomes – meaning that if things go wrong, the administering authority carries the blame.
The situation has blurred where responsibility lies between pools and administering authorities.
Attendees heard that it would be a difficult process for a fund to decouple itself from a pool if it believed the advice it was receiving was not in the best interests of its members, with the only option being to have “difficult conversations” with its pool.
Pushing back somewhat, one pool representative flagged that funds still retain decision-making authority on where their money goes, adding they can give their pool a template for how they’d like their money invested, rather than simply accepting the pool’s advice.
Also raised as a concern was pools playing the role of both adviser and implementer, meaning that pools – even unconsciously – may prioritise their own operational preferences or existing product offerings, even if it’s not what’s best for the fund in question.
Beyond accountability, questions were raised about capability. Pools are building advisory teams from scratch – teams which will be smaller than independent consultants, whose members haven’t worked together before, and who collectively have no track record in strategic asset allocation.
As such, while they’ll be able to technically do the work, it was questioned whether they’ll be able to do it well.
Post-party hangover on the horizon in the US
Another key discussion point across the two days, particularly when markets were up for discussion, was the US.*
As at last year’s LAPFSIF in July, the conference room was rife with talk of the end of American exceptionalism – with this only further underlined by experts stating that we’re living in the era of the depreciating dollar.
All this comes despite strong growth figures being seen recently in the US. This, according to one speaker, is only destined to last until the summer – with the US President doing all he can to get the US humming in time for the 250th anniversary of the founding of the country.
But, they cautioned, “the party is going to be great, the hangover is going to be bigger”. They added: “I do want to caution, towards the end of this year and potentially into next year, a much less rosy outlook in the US.”
As such, they recommended funds be “defensive” on their interest rate exposure, as well as, more generally, in US markets.
Outside the US, emerging markets appear to be becoming a safer bet, and while we’re in a period where – according to one attendee – demand in this space is quite low, that is likely to change. Another attendee, meanwhile, said “we should all have exposure to them in some way or another”.
Another explained: “If you look at emerging market economies, their level of indebtedness is quite low relative to the developed markets and their growth rates are much higher – so therefore they can sustain it much better, so there’s an opportunity there in itself.”
AI still a key topic of conversation
It won’t surprise you to learn that one of the more dominant talking points in investment circles for certainly the past few months if not the past year or so, namely AI, crept up as a talking point across the two days. Indeed, as one attendee put it, “we can’t not talk about AI”.
There is nervousness from some about whether they are going to see a return on their investment – but in the long term, it’s thought there will be money to be made in this market. This is less likely to primarily come from direct investment in the “hyper-scalers” in the US, instead coming from secondary investment opportunities such as energy suppliers and copper mining – two spaces widely seen as key to powering AI infrastructure.
One speaker added: “I think what’s really important from an investment perspective is not just focusing on that top level but focusing on the beneficiaries of AI from a cost perspective and focus on the beneficiaries from an energy perspective as well.
“It’s something I’m very excited about from the UK perspective, I’m very excited about from a European perspective, and I do think it’s one of the areas that we do well.”
They went on to say: “When it comes to AI earnings, this needs to come through the hyper scalers but do look at the secondary derivatives.”
Fixed income revival
Discussions revealed a renewed appetite for fixed income across LGPS funds, driven by attractive yields and improving funding positions now exceeding 100% in many schemes.
Securitised assets were highlighted as gaining particular traction, offering comparable spreads to investment grade credit while providing access to “real economy” investments like mortgages and SME lending with less concentration risk.
The UK equity panel raised questions about domestic allocation levels. The panel noted that UK pension funds allocate around 4% to domestic equities while Australian funds allocate 24-25% domestically and US funds significantly more.
One speaker reflected on changing risk appetite, recalling how British Biotech reached the FTSE 100 in the 1990s with no sales, just potential. That willingness to back early-stage companies has diminished, panellists suggested, even as UK tech unicorns rank third globally.
The challenge, attendees heard, is that these companies often choose to list elsewhere or are acquired by foreign firms at premiums to London market valuations.
As the conversations wound down at the Fairmont during LAPFSIF February, a clear shift in market sentiment had emerged. Several speakers suggested that US exceptionalism is fading, with advisers recommending defensive positioning and greater exposure to emerging markets, while AI investment opportunities are beginning to move beyond US tech giants toward infrastructure plays in data centres, energy, and copper mining.
Meanwhile, the relationship between LGPS funds and pools proved one of the most contentious topics across the two days. As pools replace consultants for strategic advice, accountability concerns are mounting – funds retain responsibility for outcomes but are losing control over the guidance that shapes them.
* This event took place prior to the US/Israeli attacks on Iran
Further reading
For more information on the event, visit the LAPF Strategic Investment Forum website.
