MCHLG has issued an informal consultation around updated guidance on pooling for LGPS funds. The previous guidance was issued in 2015, prior to the establishment of most of the eight pools, and much has since changed. The consultation is also welcome, so long as MCHLG is willing to listen to what it hears.
Four years on, the case for pooling is not proven, except in the important sense that it has led to significant fee reductions. It could be argued that this would have happened anyway but there is no doubt that the imminent arrival of the pools concentrated asset managers’ minds. Aside from this, in our view the main benefit, again not unimportant, has been the increase in resources which can be directed to areas such responsible investment and, through collaboration, infrastructure.
On the negative side, there have been significant costs in the setting up of the pools, both in the higher staffing levels and the need for legal and other advice. How long it takes to recoup this is almost impossible to estimate but it certainly should be measured in decades, not years. It also puts the Funds which are large enough to achieve economies of scale already in a dilemma: can they agree to transferring assets to the pools while fulfilling their fiduciary duty?
The guidance proposes that they should take into account the benefits to members across the pool and indeed the whole LGPS, but we find it difficult to reconcile that with 101 Committee members’ duty to their local members and employers. In our view, if the pools are indeed beneficial in the long term, they need to demonstrate that. 101 Committees can then make their own decision (we are tempted to add in their own time) on the basis of whether it is good for their own members without invoking parties further afield. That would be clearly consistent with their fiduciary duty.
Read Linchpin’s full response to the consultation here.