Aon says the proposals to accelerate investment pooling in the UK Department for Levelling Up, Housing & Communities’ consultation ‘LGPS England and Wales: Next steps on investment’, come with governance risks and potential conflicts of interest.
Aon urges getting more information on proposals to prevent conflicts of interest in local investments along with strong calls for assessing and monitoring governance impacts. It states that clarity on the direction of pooling proposals is welcomed, but key governance aspects should not be overlooked.
Aon partner and head of public sector UK, wealth solutions Alison Murray says: “Governance matters must not be overlooked in responses to this consultation. Moves to accelerate pooling come with governance risks, and there are many practical challenges, such as managing conflicts of interest relating to local investments and implementing effective knowledge and skills requirements.
“The proposal to improve transparency and reporting, including a requirement for a single standard set of data on investments across annual reports and LGPS statistics is welcome, but there is no proposal to assess nor report on any governance improvements. Given some strong statements in the consultation on how accelerated pooling will improve governance, it is important the governance impacts are measured and monitored.”
Aon senior consultant and head of public sector governance, Wealth Solutions Mary Lambe says: “The proposal to allow pools to assist LGPS funds by ensuring decisions to invest in local areas can be taken at pool level, which avoids perceived or potential conflicts of interest, still need fleshing out. More details of how, in practice, decisions taken by individuals representing the LGPS funds at pool level avoid conflict are needed to understand this proposal further.”
“The proposals also state that “pools should be actively advising funds regarding investment decisions, including investment strategies”.
Lambe adds: “We are concerned that this practice could bring conflicts of interest if a pool is advising constituent funds on investment strategies. But there are other considerations, including whether pools would be able to meet the requirements of the National Framework for provision of strategic investment advice.
“There needs to be clarity on why pools should provide this advice and what benefits it would bring to the LGPS”.
Murray says: “It has been a long wait for this consultation and whilst it is very positive to finally have some clarity over the direction of travel, in its enthusiasm to extol the benefits of pooling, we believe key governance aspects are being overlooked. It is vital that this is addressed before the proposals progress further.”
