LGPS braces for radical change as reforms collide with global market upheaval

Published: September 10, 2025

Delegates at the LAPF Strategic Investment Forum confronted a challenging new reality: declining US market dominance, accelerated government reforms, and pressure to deliver both local investment and climate returns

Adaptability has been the watchword for the LGPS market for several years now, with the sector having to contend and adapt to wars, global pandemics, and geopolitical shockwaves impacting what business as usual looks like for funds. But with a mix of legislative changes and political shifts at a local level, coupled with the geopolitical climate we’re living through, this need for adaptability is more acute than ever.

These trends were top of mind as delegates arrived at Watford’s The Grove Hotel on the 30th of June, with the only other topic of discussion being one of relief from the blazing sun as delegates looked for shade (and air conditioning!) amid the second heatwave of the summer.

US supremacy taking a backward step

It won’t come as a great surprise that geopolitics was high on the agenda, with a consensus that we’re seeing the pre-eminent position of the US as a key investment jurisdiction becoming less of a priority. Taking its place: a rise in the more geographically diversified portfolio.

The dollar itself was also brought under scrutiny with suggestions that it’s currently on a path towards losing its status as the world’s reserve currency. And while the consensus was that this change in status won’t happen for another five years, one attendee argued that the decisions of the current US administration may have accelerated the currency’s longer-term decline.

They added that the “genie is now out of the bottle”, and the US is now on the way to losing its “exorbitant privilege” of financing itself more cheaply.

Things don’t look much better when it comes to US debt, which has reached a level that was described as “fiscal child abuse” – primarily because of the burden being placed on future generations if the country continues on its current trajectory.

We’ve also moved into a position where US assets are now deemed less exceptional than they have been in the past.

It’s all been caused, of course, by the decisions of the new administration in the White House – with the effects of initiatives like Liberation Day creating a “will he, won’t he” atmosphere in the market.

This has led to calls from investors and asset managers to focus their attention on companies capable of navigating the uncertain waters they’re swimming in.

The industry is also living in an economic climate where investors are deciding between backing a UK that is expecting low economic growth in the coming years, or fighting the fears around tariffs.

Shifting sands in the UK

Speaking of the UK, it came as no surprise to anyone where the attention was focused in this market – with reforms coming down the track firmly placed at the top of the agenda for all those in attendance across the two days.

In particular, speakers highlighted the speed with which the government has moved to introduce these reforms – typified by the Pensions Bill which many in the room believed won’t be accepting many – if any – external amendments.

As such, the consensus was that any changes pushed through will be via choreographed government amendments.

So how will the changes impact the industry? Well, for one, the pools have a big project on their hands to complete the transfer of funds’ assets by the March 2026 deadline, especially the legacy investments that are coming to an end.

There are also changes to the definition the government has given as to what “local” means for the industry in practice.

The Bill defines local investment as “local or regional to the Administering Authority or pool” that has a “quantifiable external benefit” to the area in question. The Bill also “encourages an ambition” of around 5% of a fund’s local portfolio to be invested in “local” projects.

This led to questions about what could be counted as “local” investment.

For example, would an investment in a nationwide infrastructure project which, as part of its work, benefits the local area that an administration or pool is based in be counted as part of the 5% or not? As always, the devil will be in the detail as the bill goes through Parliament.

With this mandated approach to a minimum allocation to local investments, we’re also likely to see a continued uptick in those asking for local investment – including mayoral authorities who could become increasingly vocal. This is something that is expected to put a strain on LGPS funds already struggling for resources due to the wider financial issues currently being seen in local government.

Despite these challenges, there is some enthusiasm – if tinged with a touch of the above concerns about how the bill is implemented. However, all in all there’s a general “let’s just get it done” attitude from across the industry.

One thing that is clear is that government is asking for the industry to provide deliberately targeted investment in their local area.

A field flagged as one with big potential for further investment is that of the social housing space – something which unsurprisingly would earn brownie points from the government, with at present around one in 20 waiting for social housing.

Firstly, these are incredibly durable, long-term investments and, secondly, there is a demand for affordable housing pretty much everywhere.

More broadly, the turn to both pooled and local investment may see some parts of the industry fall by the wayside. A notable part of the sector flagged by one speaker was the demand for specialist asset managers – with the new rules forcing asset owners to think more broadly about what to invest in and where.

Climate investments still high on the agenda

Across the two days, investment in nature was a particularly hot topic of conversation – and for good reason, it being suggested that about 55% of all global GDP is dependent on natural resources.

As such, it’s little wonder that – according to one of the speakers – the next financial crisis is likely going to be driven by climate change, with biodiversity loss having a systemic risk on the economy.

And investment in this space goes far beyond just portfolio diversification for most funds, with an increasing number thinking about how their revenue is being generated in the first place and turning nature into the next key thematic investment coming down the track. This complements regulation in driving the move towards nature investment.

Now of course it’s all well and good that funds want to invest in nature, but how can we know if these investments are working?

This is something that has been an issue in the past – but now there’s an increasing number of metrics out there, extrapolated from the likes of net zero, water, pollution and deforestation targets, that mean funds, can track the success or failure of these investments.

Off the back of this, we’re starting to see funds moving from a more passive style of engagement in nature investing to taking a more active approach – taking a particular interest domestically.

This is because the UK itself is one of the most nature-deprived countries on the planet – manifesting itself through drought and flooding risk costing the UK economy £2 billion a year, with these risks only going in one direction.

And with so much catching up to do, there’s a great deal of opportunity for further investment to push the country in the right direction.

When it comes to where this money is going, climate solutions typically sit under the infrastructure asset class, but as the market has evolved there are opportunities across several asset classes.

For example, there are the picks- and shovels-type technologies that could sit under private equity, as well as the likes of forestry nurseries or data metric companies. Then looking into the future, you could also see the provision of debt instruments enabling these companies to grow.

Given this breadth of opportunities, while these all fit into one of the core asset classes, we could see a move to a position where natural capital could be its own asset class at some point in the not-too-distant future.

Overall, the Forum highlighted the LGPS sector’s need to navigate a complex landscape of declining US financial dominance, upcoming UK pension reforms, and growing opportunities in climate and nature investments.

Further reading
For more information on the event, visit the LAPF Strategic Investment Forum website.
LGPS responds to government local investment calls