Asset management and stewardship
Stewardship and responsible investment
Collectively the £342bn 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.
There is now a new UK Stewardship Code 2020, however for the period of this report the UK Stewardship Code (second edition 2012) still applied to the signatory funds listed below. The 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).
Some 32 LGPS funds/pools (36%) were Tier 1 signatories to the Code and 12 funds (13%) (inc five pool companies) were signatories to the UNPRI (see table below). Since March 2020, East Sussex Pension Fund became a signatory to UNPRI.
Signatory to UNPRI
|East Sussex Pension Fund||Asset Owner||United Kingdom||11/12/2020|
|Hampshire Pension Fund||Asset Owner||United Kingdom||16/01/2020|
|Border to Coast Pensions Partnership Limited||Asset Owner||United Kingdom||31/10/2019|
|City of London Corporation||Asset Owner||United Kingdom||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
|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.|
|Gwynedd Pension Fund|
|London Borough of Bexley Pension Fund|
|London Borough of Ealing Pension Fund|
|London Borough of Hillingdon Pension Fund|
|London Borough of Waltham Forest Pension Fund|
|Merseyside Pension Fund|
|Rhondda Cynon Taff Pension Fund|
|Somerset County Council|
Change in allocation chart based on aggregated Net Asset Statements year to 31 March 2021
Asset allocation charts based on aggregated Net Asset Statements as at 31 March 2021
|Asset class||Asset type||£000s||%||£000s||%|
|Asset class||Asset type||£000s||%|
|Other (including aggregated private equity/infrastructure/other)||█||3,248,276|
Net return on investment based on aggregated Fund accounts year to 31 March 2021
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 2021 was +21.1% (2020 -4.4%). The average investment expenses were 0.5% over the period (2020 0.4%), therefore the net return on investment was +20.7% (2019 -4.8%).
The above chart shows the distribution around 21%, for 2021 █, with most funds falling in a range of between 15% and 28%. For 2020 █ the distribution was around -6%, with most funds falling in a range of between -2% and -6%.
This year’s peer group results is based on a Universe of 64 funds with a value of £230bn. This represents some two thirds of local authority pension fund assets and includes all of the Welsh and Northern Pools, all bar one of the London Pool, with funds from all other pools except Central.
LA Market EnvironmentIt was almost as though equity markets worldwide had barely noticed that COVID was locking down most of the world and changing consumer behaviour and working patterns in ways not previously imagined. With an average result of just under 40% equity returns reclaimed the lost performance of 2019/20 and much more – over the last two years they delivered an average return of 11.4% p.a. - well ahead of even the most optimistic forecasts.
In the latest year UK Equities delivered a return of 30%. This was ahead of the All-Share index by some 3%, a second good year for active managers. However the market return was well behind that which was achieved elsewhere. Funds that retained a high commitment to the domestic equity market would have underperformed their peers. The proportion of UK equities in the average fund continues to decline. This is not just as a result of poor relative market performance but also due to a strategic move into a global allocation of equities.
At the end of March 2021 the level of equity assets managed passively was 26%, down from 30% at the end of the previous year. This difference is due to the outperformance of active managers last year. In 2020 the median global active equity Manager performance was 2.2%, broadly in line with the equivalent measure this year. However in 2020 the upper quartile (top 25%) outperformed by 4%. This year the outperformance is more than twice that level.
Bond returns were mixed – multi asset credit funds had performed badly in the COVID induced market panic of the first quarter of 2020 but have performed well in the latest year and more than recouped their losses. Funds that held bond portfolios benchmarked against government bond indices performed relatively poorly relative to those benchmarked against an absolute return.
While private equity continued its run of exceptional performance and hedge funds had an equally strong year, private debt fared less well. Infrastructure, one of the sectors most impacted by the global lockdown, performed poorly. It delivered a return of 1% for the year.
At the end of March 2021 half the funds in the Universe had some investment in bespoke low-carbon / climate aware equity vehicles. This represented 11% of all equity investment.