Agenda item

The Committee considered a report of the Director of Corporate Resources, the purpose of which was to provide the Local Pension Committee with an update on the outcome of the fit for the future consultation and pooling matters with LGPS Central. The report also sought approval of the revised Terms of Reference for the Local Pension Committee. A copy of the report marked ‘Agenda Item 12’ is filed with these minutes.

The Chairman welcomed Mr. Richard Law-Deeks, Mr. Trevor Castledine, Mr. Mark Davies and Mr. Simon Hancock from LGPS Central (Central). A presentation was provided as part of this item. A copy of the presentation slides is filed with these minutes.

Arising from discussion, the following points were made:

1. Members welcomed the amendments to the Terms of Reference for the Committee, which provided clarity around the appointment of the Chairman and Vice-Chairman. It was confirmed with Members that, in the unlikely event that the Chairman and Vice-Chairman were not available for any reason, the panel could still nominate a Chairman for the meeting.

2. In response to a question on how the various weightings and the number of managers had changed over time, Central explained that at inception, the Global Equity Active Multi Manager Fund was launched with three managers, initially overweighting the value manager at approximately 38%, with the remaining two managers equally weighted. Over time, as the market rotated, the allocation to the value manager was reduced. In 2024 following a three-year review, a fourth manager with a quality-focused, high-conviction strategy was introduced. This manager typically holds 30–40 stocks with strong balance sheets and currently represents around 15% of the portfolio.

3. A Member questioned if the “Magnificent Seven” group of leading tech stocks underweight position was intentional or just fortunate, and when looking ahead what the outlook position was given their significance. It was explained that positioning was intentional, and that managers generally saw limited value in those stocks due to their elevated valuations and, as expected, the value manager held very few of them. Looking forward, it was anticipated that there would be a reversal in valuations, and the managers continued to monitor those companies closely given their market dominance.

4. Central provided an update on pooling and legislative developments following the ‘Fit for the Future’ consultation outcome. Pooling was now entering its second phase, having continued cross party support, which reflected a consistent policy direction rather than a political shift. Central was currently comprised of eight partner funds, and was actively engaging with up to 21 funds whose pooling plans were not approved by government. While not all were expected to join Central any expansion would be managed carefully to ensure operational resilience and scale: key factors the government was prioritising.

5. The Government had introduced new legislative requirements for pools, formalising what had previously been a collaborative direction of travel. These included five core obligations, to be delivered by 31 March 2026. While each administering authority retained sovereignty over its investment strategy, it was now required to seek investment advice from its pool. Central was developing a dedicated advisory service to meet the requirement, building on services previously provided to the Fund and other partner funds.

6. A question was raised about the increasing influence of external directives, particularly those around local investment, and whether they could compromise the Fund’s ability to act in the best interests of its beneficiaries. In response, it was clarified that, the pension fund’s primary obligation remained to its beneficiaries, investment decisions must meet strict risk-return criteria and could not be made solely on political or geographic grounds. Pools were required to provide advice and support to administering authorities, but not to override fiduciary judgement, and there were regulatory safeguards that ensured that poor investment decisions could not be made deliberately, even under external pressure. The reassurance provided was welcomed, with acknowledgement that fiduciary duty must remain paramount, and that the current framework provided sufficient protection against undue influence.

7. It was confirmed that administering authorities would be required to develop a local investment strategy as part of the broader pooling and regulatory changes. This aligned with the government's wider agenda around local government reorganisation and English devolution, encouraging collaboration between pools, administering authorities, and strategic regional bodies. However, the responsibility for defining what constituted "local investment" remained sovereign to each authority, and given the diversity among LGPS Central’s eight partner funds, there was expected to be significant variation in how local investment strategies were interpreted and implemented. A draft version of the updated Investment Strategy Statement (ISS) was scheduled to be presented to the Committee later in the year for review and comment.

8. In response to a question raised, it was explained that, while Central was an FCA-regulated asset manager and was required to deliver professional investment services to its partner funds, it did not currently have a formally stated fiduciary duty to individual members within its constitutional documents. It was the view of Members that administering authorities should retain ultimate fiduciary responsibility, even when asset management was outsourced. The suggestion was made that explicitly embedding fiduciary duty into Central’s constitution would provide additional assurance and safeguard the Fund against any external conflicts of interest. The issue was expected to be considered further as part of LGPS Central’s ongoing governance review.

9. The Committee discussed the appointment of a third member to the Investment Sub-Committee. It was agreed that Head of Law and Deputy Monitoring Officer would explore the process of appointment of Members to Investment Sub-Committee meeting and to provide information to the Chair of the Local Pension Committee.

RESOLVED:

a)    That the Fit for the Future and LGPS Central Update report be noted.

b)    That the revised Terms of Reference of the Local Pension Committee be approved.

c)     That information on the arrangements for the appointment of Members to the Investment Sub-Committee be provided to the Chairman.