Most local authority funds expect to retain some choice over how they manage their investments, according to an opinion poll at the recent LAPF Strategic Investment Forum.
When asked about their expectations for the future of the local government pension scheme (LGPS) investment management, 75% of delegates said that existing LGPS funds will have some choice over managing investments themselves or utilising a new fund of funds. The government is expected to announce its plans for reforming the investment of LGPS funds, with some voices pushing for greater consolidation in the LGPS. The uncertainty over what could happen was shown by the fact nearly 20% of delegates said that they could not even guess the likely outcome of the review.
On which asset class would deliver the best returns over the next five years, just over half the audience picked developed market equities, while 43% chose emerging market equities. Europe was seen as the best region for equity market returns by 32% of respondents followed by USA (22%), Africa (17%) and South America (12%). Just 5% chose China. Just under two-thirds agreed the global economy is in a recovery, albeit with volatility, but 19% said that they will be more aftershocks, as the global economy has not recovered properly from 2008. Most delegates said they expect interest rates to return to normal in 2017 or 2018.
Looking back, misaligned incentives within banking systems were seen as the biggest cause of the financial crisis in 2008, just ahead of excessive complexity of financial instruments and the irrational exuberance of investors. 70% of the audience agreed that the City and its global counterparts have not learnt the right lessons from 2008.
Asked whether their fund excluded tobacco holdings, 47% of LGPS officers said that their fund did, while 26% said that they did not. On investing LGPS funds in local housing or infrastructure projects, 69% said it made sense provided that potential returns were commercially attractive, while 24% said it was too big a conflict of interest.