Asset management and stewardship

Stewardship and responsible investment

Collectively the £275bn LGPS funds are one of the largest 10 global sources of capital and can influence behavioural changes that lead to better stewardship by the global asset management community and the entities and places they invest in.

All LGPS funds have published their Investment Strategy Statement (replacing Statement of Investment Principles) and comply with the Myners Principles as these are LGPS statutory requirements.

The UK Stewardship Code (second edition 2012) and global United Nations Principles of Responsible Investment (UNPRI) set out key principles of effective stewardship for asset owners to help them better to exercise their stewardship responsibilities.

Compliance with these UK and global sets of principles is not mandatory for LGPS funds but they have the support of the UK Government and Local Authority Pension Fund Forum (LAPFF).

As at 31st March 2018 some 28 (31%) were signatories to the Code and 8 funds (8%) (plus one pool company becoming a signatory in March 2018) were signatories to the UNPRI (see table below). Since March 2018, three more pool companies and the City of London Corporation became signatories to UNPRI

Signatory to UNPRI


Account Name

Signatory Category

HQ Country

Signature Date

City of London Corporation Asset Owner Asset Owner 12/12/2018
Local Pensions Partnership Asset Owner United Kingdom 20/07/2018
LGPS Central Asset Owner United Kingdom 24/05/2018
London CIV Asset Owner United Kingdom 21/05/2018
Brunel Pension Partnership (BPP) Asset Owner United Kingdom 16/03/2018
Kent County Council Superannuation Fund Asset Owner United Kingdom 11/04/2016
Lancashire County Pension Fund Asset Owner United Kingdom 10/03/2015
Greater Manchester Pension Fund Asset Owner United Kingdom 06/05/2014
West Midlands Pension Fund Asset Owner United Kingdom 28/06/2011
Merseyside Pension Fund Asset Owner United Kingdom 10/10/2007
London Pensions Fund Authority (LPFA) Asset Owner United Kingdom 16/07/2007
Environment Agency Pension Fund Asset Owner United Kingdom 14/07/2006

Signatories to UK Stewardship Code



Tier 1

Tier 2

Signatories provide a good quality and transparent description of their approach to stewardship and explanations of an alternative approach where necessary. Signatories meet many of the reporting expectations but report less transparently on their approach to stewardship or do not provide explanations where they depart from provisions of the Code.
Avon Pension Fund (PDF) Environment Agency Active Pension Fund London Pensions Fund Authority
Bedfordshire Pension Fund Greater Manchester Pension Fund North Yorkshire Pension Fund
Border to Coast Pension Partnership Lancashire County Pension Fund South Yorkshire Pensions Authority
City of London Corporation LGPS Central Ltd Staffordshire Pension Fund
Clwyd Pension Fund (PDF) Lincolnshire Pension Fund Strathclyde Pension Fund
Cumbria Local Government Pension Scheme Local Pensions Partnership The Tyne and Wear Pension Fund
Derbyshire County Council Pension Fund London Borough of Camden Pension Fund Warwickshire County Council Pension Fund
Devon Pension Fund London Borough of Hackney Pension Fund West Midlands Pension Fund
East Riding Pension Fund London Borough of Haringey Pension Fund West Yorkshire Pension Fund
East Sussex Pension Fund  London CIV Wiltshire Pension Fund
    Worcestershire County Council Pension Fund
Devon Pension Fund
Gwynedd Pension Fund
London Borough of Bexley Pension Fund
London Borough of Ealing Pension Fund
London Borough of Hillingdon Pension Fund
Merseyside Pension Fund
Somerset County Council

Investment allocation

Change in allocation chart based on aggregated Net Asset Statements year to 31 March 2018

Investment Assets   2017 2018 Change
Fixed interest securities 7.0% 6.7% -0.2%
Equities 31.8% 28.5% -3.2%
PIVS 47.3% 49.6% 2.3%
Property PIVs 47.3% 4.9% 0.3%
Derivatives 0.6% 0.2% -0.4%
Property 2.7% 3.0% 0.3%
Other 1.1% 1.6% 0.5%
Private Equity 2.6% 2.6% 0.0%
Cash deposits 2.2% 2.6% 0.4%
Other balances 0.3% 0.4% 0.1%
Total   100.0%  100.0%  
  Change in allocation chart image
Click on the chart for a larger view in a new tab/window

Asset allocation charts based on aggregated Net Asset Statements as at 31 March 2018

Asset class Asset type   £000s % £000s %
Bonds Bonds 18,412,952 6.7% 18,412,952 6.7%
Equities Equities 78,243,785 28.5% 78,243,785 28.5%
PIV PIV 136,000,731 49.6% 136,000,731 49.6%
Property PIV Property 13,313,286 4.9% 21,436,278 7.8%
Property direct   8,122,992 3.0%    
Other Other 4,285,505 7.3% 17,881,572 7.3%
Total         274,199,097 100.0%

Total asset allocation

Total asset allocation chart image Other asset allocation chart image

Other asset allocation

Asset class Asset type   £000s %
Other Cash Deposits 7,183,543 35.7%
  Private equity 7,147,347 35.5%
  Other balances 1,067,604 5.3%
  Other (including aggregated private equity/infrastructure/other) 1,253,008 6.2%
  Infrastructure 3,032,497 15.1%
  Derivatives 421,352 2.1%
Total     17,881,572 100.0%

Net return on investment based on aggregated Fund accounts year to 31 March 2018

Net return on Investment

Net return on investment % is calculated by dividing the net return on investment by the average value of the fund over the year - this differs from calculated performance.
The average return on investment, and total for the scheme on an aggregate basis, for the year ended 31 March 2018 was 4.4% (2017 19.4%). The average investment expenses were 0.4% over the period (2017 0.4%), therefore the net return on investment was 4.0% (2017 19.1%).

The above chart shows the distribution around 4.0%, for 2018 , with most funds falling in a range of between 15.0% and 22.0%. For 2016 the distribution was around 0.1%, with most funds falling in a range of between 0.3% and -0.3%.

Investment Performance

The following market commentary was provided by Pensions & Investment Research Consultants Ltd (PIRC) based on their Local Authority Pension Fund Performance Universe. Please see the LAPPA website for further details.

This year’s peer group results is based on a Universe of 61 funds with a value of £177bn. This represents some two thirds of local authority pension fund assets and includes all of the Welsh and Northern Pools, all bar two of the London Pool, with funds from all other pools except Central.

LA Market Environment

Over the last twelve months the average Local Authority pension fund has returned 4.5%. This return is below the 30 year average of 8.9% p.a. but broadly in line with actuarial assumptions which are currently estimating around 4% p.a. Asset returns were tightly grouped with bonds, equities and alternatives returning 1%, 4% and 6% respectively for the year.  Strategic asset allocation therefore had less of an impact than usual - the range of individual fund returns was about half that seen in the year previous with almost all Funds returning between 2% and 6% for the year.

UK equities underperformed all major overseas markets for Sterling investors. Active management also failed to add any value above the benchmark.

After struggling in 2016 to 2017 active global equity managers came back strongly in the last year. The average global equity portfolio outperformed the index by over 2% in the latest year. Baillie Gifford, the largest active equity manager across the LGPS, performed particularly strongly. The funds in the top decile of performance in the last year were all managed in part by Baillie Gifford.

Bond markets produced small positive returns. Those funds that invested in absolute return mandates produced better returns than those managed against market indices.  Most bonds are managed on an active basis and the move towards absolute return portfolios (all of which are actively managed) has meant that the level of passive management within this group has declined further in the last year. Bond portfolios perfromed broadly in line with benchmarks with exception of overseas bonds where they comfortably outperformed.

Property was the best performing of the major asset classes returning 10% for the year. Most funds now have some exposure to this asset which enhanced overall returns.

In terms of asset allocation, this has remained broadly unchanged over the last decade - with equities remaining the dominant asset class in most fund's allocations.  The reduction in the equity exposure was reduced at the fastest rate yet seen in the latest year. However, the LGPS is still substantially overweight in equities when compared with the corporate sector where schemes have sought to 'de-risk' their assets, moving instead to bonds and cash flow matching investments. See in Figure 1 below:
Figure 1: Asset Allocation 2018
Allocation 31/3/2016 31/3/2017 31/03/2018
Equities 60 62 55
Bonds 16 15 18
Alternatives 9 10 11
Property 9 8 9
Cash 3 2 3
Diversified Growth 3 3 4

Longer Term Performance

Performance has been extremely strong over the medium and longer term. There have been only five years of negative performance in the last thirty, at the start of the millennium (the bursting of the dot-com bubble) and the global financial crisis (2008/09). All periods were followed by double digit returns. The equity 'shocks' that investors are so concerned about mitigating have been infrequent and the reward for holding equities substantial.

Figure 2: Discrete Period Performance of Local Authority Funds

% pa 3 Years 5 Years 10 Years 20 Years 30 Years
Average 8.3 8.8 7.7 6.5 8.9
Median 7.7 8.5 7.5 6.1 8.7
RPI 2.7 2.3 2.8 2.8 3.3
CPI 1.7 1.4 2.3 2.0 2.6