Local authority pension funds could find their investment capabilities restricted under the MiFID II (market in financial instruments directive II) which comes in force in January 2017.
Unless local authority funds can qualify as professional clients, as opposed to retail clients, of fund managers, they will be unable to invest in certain asset classes and products, which could lead to a fire-sale of existing local authority pension fund assets, according to experts. To qualify as a professional client under MiFID II, local authority funds would have to convince asset managers that they are capable of making their own investment decisions and understand the risks involved. In addition, each fund has to have a responsible officer who can meet two out of three criteria on terms of investment knowledge and transactions. The Local Government Association is working with the Financial Conduct Authority on the transition arrangements for local government pension funds and it is also seeking clarification on what will happen with a fund’s responsible officer under the MiFID II regulation changes jobs.