SNP Conference 2016: Investing local government pension funds

LGiU’s chief operating officer Andy Johnston shares key points from his presentation on the investment of local government pension funds at a Smith Institute fringe event at the SNP’s 2016 conference.

Following on from Janet Sillett’s blog on the SNP conference I’d like to report back on a fringe at the SNP conference. The Smith Institute fringe looked at a way of releasing resources for councils to use on infrastructure projects.

The fringe looked at the use of local authority pension funds and I was speaking about how the 30 billion pounds sitting in the 11 Scottish schemes could be used to make devolution a reality in Scotland.

For those unaware there has been a lot of interest in these funds recently but not that many successful projects. It feels as though that is going to change because the shackles are off and the funds are now able to pool their investments and their governance. These freedoms have been available to public sector pension funds in Canada and Australia for many years. The Ontario Teachers Pension is one of the largest institutional investors in the world and owns for example, Brussels Airport and High Speed 1.

Now we are seeing pension funds down south beginning to pool and forge links in Scotland. In the jargon this pooling is referred to as a Collective Investment Vehicle or CIV. The London CIV is worth £2.4bn and the Manchester scheme is in talks with the Strathclyde Fund to form a very big CIV.

This sort of money can make a difference but it’s surprisingly difficult to spend. It must always be remembered that the investments come from money contributed by local government employees and they need the returns to pay for their pension. So, investors must be careful and this is where the problems surface. Pension fund managers don’t understand infrastructure projects and infrastructure projects don’t put their finance together in a way that makes it easy for pension funds to invest. Then there’s the human level, it’s no accident that financial centres form close aggregations, people need to meet and build trusting relationships, this takes time.

The City Deal and Growth Deal process is also relatively new but nearly all of the deals include big infrastructure projects such as Aberdeen Harbour. Infrastructure is intertwined with devolution because it’s about local priorities and satisfying local needs. Councils need the infrastructure as a base to build local economic development and tackle inequality.

It seems a small step to argue that local pension funds should be used. For example; it would be a source of pride for local authority workers to know that their pension savings paid for the roll out of Broadband where they live. As Paul Hackett, Director at the Smith Institute says “Scottish local authority pension funds are leading the way in redirecting more of their investments into local housing and infrastructure. Capturing local investment for local growth is key to Scotland’s future prosperity”

The direction of travel does seem clear. Falkirk Council have been a trailblazer using their pension fund to support a housing scheme. There will be more and bigger.

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