Engagement Panel at LAPFF14

The next item at the Local Authority Pension Fund Forum (LAPFF) conference was a panel on  "engagement" with Cllr Kieran Quinn GMPF, Chair Sir Merrick Cockell, Cllr Richard Greening LBI and Cllr Cameron Rose LPF.

Investor engagement is probably one of the most significant things that LAPFF does on behalf of its members. "By bringing local authority funds together to work collectively, the Forum is able to maximise their influence" .

Cllr Quinn started by pointing out how important it was for investors to engage and keep an eye on  all the companies they invest in - who would have expected Tesco's to have behaved in such a way? Trinity Mirror refused to accept that they had a problem with the Hacking scandal but all the information from "Hacked off" proved to be true. How could Barclay's justify giving three times as much money in bonuses as they returned to investors?

One of the most positive engagements he experienced was after the Rana Plaza garment factory collapse in Bangladesh when reputable companies were coming to us to explain what they had done and what they were planning to do. There was no investor rush to exist Bangladesh which would have not helped.

Sir Cockell pointed out that with engagement "you may lose the vote at Company AGM but still win the argument"

Vice Chair of LAPFF, Cllr Rose discussed the engagement he has had on Carbon risk with the UK major oil majors and the fall out from falling prices.

Cllr Geening talked about how engagement can take time and be difficult. Such as the lack of progress with National Express on their anti trade union activity in the USA. Management don't think there is a problem. However, it took time for similar issues to be dealt with at First Bus and engagement did eventually work.

I raised a question to the panel about whether they would support disinvestment in a company as a last resort if engagement failed?

The panel response was as a very last resort they would consider disinvestment but it would have to be at the very end of the road. The whole purpose of engagement is to change company behaviour and if we walk away from a company then it won't necessarily change anything.

There was a good point made about what would be the future of engagement if the LGPS was forced to invest only in passive (tracker funds) and therefore could never disinvest.

LAPFF Conference 2014: Public Funds & Public Purpose

Yesterday I came back from the Local Authority Pension Fund Forum (LAPFF) conference. I will post more on the conference later on.

It was I think the best attended LAPFF conference I have been to which reflects the huge changes and chellenges that the Local Government Pension Schemes (LGPS) faces and that membership of LAPFF is at an all time high.

The conference opened with a welcome from LAPFF Chair, Cllr Kieran Quinn Greater Manchester Pension Fund.

The Conference Chair was Sir Merrick Cockell, former Conservative leader of Kensington and Chelsea Council and the Local Government Association. He is now deputy Chair of LPFA. I found his remark that "No matter what your politics are you must be concerned about the under supply of housing" interesting.

He also said that we nationally need to invest in infrastructure for not only social purposes, but for sustainable and better returns than gilts & bonds. He believes the future is pooling & collective investments and you don't just need sovereign investment funds such as Qatar for such infrastructure & housing projects.

In the past Sir Cockell has publicly supported the merger of all 101 LGPS into just 5 funds and that this could result in some 300,000 new homes being built every year.

Next was a debate on LAPFF "engagement".

Eric the Trekkie at the LGA Parliamentary Reception 2014

New(ish) Labour MP and former Lambeth Council leader, Steve Reed spoke first at last months Local Government Association event in the House of Commons Terrace Pavilion. 

Steve contrasted his experience as a Councillor with that as an MP. He felt the experience was very different especially since local people could attend Council meetings to let Councillors know their views but the House of Commons seems isolated in comparison.

Next was the Secretary of State for Communities and Local Government Eric Pickles. He described himself as a Star Track fan and told us that "all resistance to freezing Council tax rises was futile".

Apart from this joke Eric's speech was actually non partisan and even very "un-Eric". He praised local authorities for their response to the recent floods and said he thought Councillors were excellent local advocates and champions. He claimed that if he ever seems grumpy as Secretary of State we should remember that he loves us all a lot.

The head of the LGA, Conservative Cllr Sir Merrick Cockell spoke next and actually said how sad he was that due to property price increases his children are not able to live in the borough (Kensington and Chelsea) he has led as Council leader for the past 13 years. Which I found to be a pretty amazing thing to hear. If his kids cannot live there then who can? 

He also called for more homes to be built, to support small builders and for a 5 year long local government grants settlement by National Government rather than yearly. Which makes perfect sense to me.

Final speaker was Baroness Bakewell who had served beforehand for 20 years in Somerset Country Council and she reflected on the 8 times so far the Lords had defeated the Government and the many other times that they had made them rethink their policies.

Council pensions, mergers and the infrastructure cacophony

(this is an article I wrote for Professional Pensions which was published yesterday on behalf of the AMNT. An earlier John's Labour Blog version is here).

"Recently Sir Merrick Cockell, Chair of the Local Government Association announced that he personally supported the merger of the 101 different Local Government Pension Schemes (LGPS) into 5 “super schemes” each worth around £30 billion each.

He was being interviewed about a report from The Future Homes Commission on the need for investment in residential property. He argued that to invest in such infrastructure you need massive scale. There are claims that this merger and investment could result in 300,000 more homes being built every year with 15% of pension assets being invested

His comments are likely to be more than a little controversial in the sedate world of Council pension funds.  Merger is controversial. Some funds have consistently argued for merger in the past not only to enable infrastructure investment but to increase returns and slash costs. Others say "rubbish", bigger doesn't mean better and small is often beautiful (and more democratic and responsive).  The fragmentation of pension funds in the private sector is also far worse.

Yet, the governance concern about these proposals is even more significant than a spat over size.

As a LGPS member nominated representative I have been in favour of looking into the merits of merging Council pensions schemes for many years. Also investing in rented residential properties as an asset class with the prospect of long term inflation linked returns has always seemed attractive.

But remember pension funds must be run in the interests of the scheme beneficiaries and not make up for an inadequate state housing policy or the need to stimulate demand in the wider economy.

Have Councils in favour or opposed to merger actually consulted beforehand on this issue with their beneficiaries? Why is the government being let off the hock and not asked for guarantees?

The local government trade unions have quite rightly objected to this plan which was made without any consultation with them.  There is a planned cap on employer contributions to the LGPS so if this infrastructure investment goes belly up then active beneficiaries will be left to pick up the pieces.

15% is a very significant amount of assets to invest in any one class. Nothing in life is risk free. There is an obvious risk of property price crashes or even that future housing benefit cuts could derail plans.  Hundreds of organisations are cited as contributing to the Future Homes report but there is no input from those whose money it is being proposed should be put at risk?

For this still worthy proposal to have any legs there needs to be firstly proper consultation with the representatives of scheme beneficiaries on why this is good for them and then the drawing up of a business plan as water tight as possible".

Update: The Government are now consulting on plans to allow Council Pensions to invest up to 30% of its assets in infrastructure? Up from the existing limit of 15%. Hello, 30%! What is going on here?

Council Pensions, Mergers & the Infrastructure Cacophony

This morning I was surprised to hear Sir Merrick Cockell, Chair of the Local Government Association (and Leader of Kensington and Chelsea) say on the Today radio programme that he (personally) supports the merger of the £150 billion Local Authority Pension Scheme (LGPS) into 5 or so funds only. There are currently 101 different and separate LGPS funds.

He was being interviewed about a report from The Future Homes Commission  about the need for investment in residential property. He argued that to invest in such infrastructure you need massive scale. There are claims that this merger and investment could result in 300,000 more homes being built every year.

His comments are likely to be more than a little controversial in our sedate world of Council pensions. I am reminded of the bun fight in City Hall here between "merger-ists" and "merger deniers" and the epic battle earlier this month here between the "Wandsworth" Council bulldog and "Gentleman Jim" LPFA.

One side argues that if the schemes merge they will be big enough to invest in such infrastructure funds that will not only provide homes, a much needed boost to the economy but also increase returns and slash costs. The other says "rubbish", bigger doesn't mean better and small is often beautiful (and more democratic and responsive).

By coincidence on Wednesday evening I went to the Parliamentary launch of the report by the Smith Institute "local authority pension funds: investing for growth".  It makes a number of recommendations but broadly supports the idea of a "clearing house" and "pooled" LGPS funds to invest in social housing and infrastructure. Local Authority Pension Fund Forum (LAPFF) Chair Ian Greenwood made it clear at the meeting that the forum was "neutral" with regard to merger of its funds.

In the Q&A I made the point that the report itself didn't appear to address any significant beneficiary concerns and a major reason why pension funds can't already invest in social housing is that property fund managers don't want anything to do with "plebs" and only want to invest in shiny new shopping centres and warehouses. Comrade Michael Johnson threw his usual hand grenade into the proceedings by stating that the LGPS is an Empire run in the interests of the Empire rather than its beneficiaries.

Following this mornings report UNISON has quite rightly reminded everyone that the absolute legal duty of pension schemes is to act in the interests of its beneficiaries (not to make property developers rich).  While I am pretty sure that this does not mean that UNISON is necessarily opposed to such investment, those who propose it need to be damn sure that these investments benefit our members.

Out of the hundreds of organisations that are cited as contributing to the Future Homes report there appears to be no input whatsoever from those whose money it is being proposed should be put at risk?

Check my twitter account @grayee for more details on the "epic battle" (10 October) and Smith report (24 October).

National Association of Pension Funds Local Authority Conference 2012

This was very informative and well organised conference taking place during an absolutely crucial time for the future of the local government pensions scheme (LGPS). I was there as a Councillor and member of the Borough LGPS Investment and Accounts committee.

I did “twitter” (in my case a very apt term?) during the conference (see hash tag @grayee and #napf).
The NAPF had amongst many other speakers the minster responsible for the LGPS, Bob Neill MP, the Deputy Governor of the Bank of England, Charlie Bean; the Chair of the Local Government Association, Sir Merrick Cockell (who in a Q&A I referred to as “Michael”) and from the unions, GMB national secretary Brian Strutton.

The Chair of the NAPF is Joanne Segers. By coincidence the first ever trade union pension course I ever went on was delivered by her father, TUC tutor Terry Segers. Proper old school ex-fire brigade union.

Considering the number of forthright and opinionated individuals present at the conference, the Q&A sessions were quite quiet, which gave a opportunity to a certain gobby part time politician and union rep to somewhat hog the floor during questions.

Key issues to me from the speeches and seminars were:- how Housing associations are “gagging to build new homes” which if happened could help us get out of recession like it did in 1930’s; the real problem in pensions is not in the public sector but that private sector pensions were destroyed by various incompetents; if you truly want diversity on company boards why not have employee reps on them? Are fund advisers really interested in good governance and making company boards accountable? It’s a “no brainer that LGPS should share services" (if so why not just merge?); in the current LGPS if you earn £150k per year you pay less in percentage terms net than if you earn £15k pa (this is wrong, wrong, wrong); What is the collective term for Actuaries? Answer “An invoice”; the new proposed £2 billion infrastructure fund and LGPS governance (a possible national Local Government Pensions Board?)

There was clearly an expectation by speakers that the future of the LGPS negotiations would have been finalised by now. But there is some last minute hic-cups. This is immensely frustrating but I suppose they do want to make sure, as far as possible, that there is no misunderstanding or ambiguities about the “agreement”. The ultra left trade union cry babies (the so called 0.8%ers) are of course still weeping tears at the prospect of no more strike chasing to bring about the revolution but we should have the final offer very soon.

It was good to see at the final session that the conference applauded DCLG pensions lead, Terry Crossley, who is retiring from the civil service. I have crossed swords (politely) with Terry for the past 10 years or so over beneficiary representation on the LGPS. I wish him well in his retirement and told him that if a deal is reached on a new look LGPS then he should have a new part time job and go out and sell the model to the private sector who are in desperate need of affordable and sustainable defined benefit pension schemes.