Local Government Pension Scheme (LGPS) funds can invest outside their own asset pool’s funds, in funds managed by other asset pools, but only in certain circumstances.
Jeff Houston, head of pensions at the Local Government Association, spelt out exactly when an LGPS fund can invest outside its “home” asset pool. “The question of LGPS funds investing in pools other than their ‘own’ has come up a number of times.” He added: “It is possible, but would it be allowed? Well, the answer to both is yes, but with an important caveat.”
Houston said that his understanding is that central government wants to see stability at the new asset pools as they are built up, so it would not welcome LGPS funds shopping around among the new asset pools for funds to use. But he added: “There will be times, especially to start with, when a pool will not have the full range of subfunds available to meet the needs of their clients. In that instance, it would be possible and, according to the Department for Communities and Local Government, perfectly fine for a pool to create a ‘virtual subfund’ which invests in the subfund of another pool.”
Houston concluded that this approach is not only a practical way to deal with a short-term issue but it could in the longer term, open the door to pools developing a specialisation in particular vehicles or asset classes.