Local Government pension scheme fund research reveals key investment priorities post valuation

by | Jul 11, 2022

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New research with UK Local Government Pension Scheme (LGPS) fund professionals in England and Wales reveals that 46% of LGPS funds expect to be more than 100% funded at their next triennial actuarial valuation.

With funding levels expected to be in good shape, this survey, which is from Alpha Real Capital (Alpha), the specialist manager of secure income real assets, reveals that 75% of survey participants ranked increasing or maintaining returns amongst their highest priorities post valuation.

Cashflow management ranked a close second with 66% of participants ranking this as high priority, while 60% cited their intention to de-risk/diversify away from traditional assets as a top priority. Finally, 50% or so intended to focus on ESG as a priority. Investing to effect ‘social impact locally and nationally’ and investing with the ‘Environmental impact’ in mind scored similarly in terms of prioritisation.

Note that the period after the valuation date has witnessed significant moves in interest rates, inflation and equity markets, however it is widely expected that LGPS fund balance sheets have been resilient.

Ed Palmer, CIO, Alpha Real Capital said: “Despite optimism about funding levels post valuation, it is clear that most LGPS funds are not ready to take their foot off the pedal just yet. Secure income real assets could be a useful tool for funds looking to de-risk without necessarily sacrificing returns”

Stuart Hanson, Client Solutions, Alpha Real Capital said: “Our research shows that many LGPS fund professionals are optimistic about the valuations of their funds and have a clear view of the goals and challenges they face. Assuming the final valuation results align with expectations, this would represent an excellent outcome for LGPS fund professionals in what has been a very difficult period for investors.”

Phillip Rose, CEO, Alpha Real Capital said: “The ongoing market volatility and high levels of inflation highlights the immediate relevance of the LGPS fund priorities revealed by our survey. Focusing on these priorities will require assets that provide inflation protection and improve the resilience of returns, while also targeting ESG benefits. Building a secure income real asset component to a portfolio, that includes social and renewables infrastructure, should help any investor looking to meet such priorities”

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