The local authority scheme is not sold on passive investments, but the jury’s still out on infrastructure


The Gloucestershire pension fund is a champion of active management. it has a small passive equities mandate, accounting for just 4% of its assets under management, while the rest is actively managed.

The divide between these investment approaches has been the subject of review in the government’s response to its call for evidence on the future structure of the Local Government pension Scheme.

However, Gloucestershire has no plans to change its approach. Graham Burrow, head of the pension fund, says: “the appeal was the asset outperformance.”

In numbers

£1.4bn - assets under management

45,000 - total membership

Burrow says the scheme would not rule out moving some of its assets over to passive strategies, although at the moment the argument for active management is as strong as ever.

Active management still has an important role to play in accessing market opportunities, but should be deployed selectively, when it adds value” says Linda Selman, head of LGPS investments at Hymans Robertson.

Infrastructure is one asset class where active management is still widely seen to add to the value, but Gloucestershire has so far resisted the allure.

The pension committee considered its approach to infrastructure a year ago or so, but decided it wasn’t appropriate for the scheme. this decision was made largely because of the limited range of options available. the scheme’s advisers suggested that Gloucestershire should wait a couple of years to see how the market in infrastructure funds developed, particularly in regards to how the national Association of pension funds pensions infrastructure platform progressed.

At the time the scheme did not believe the potential returns could justify the manager fees, particularly given the complicated arrangements for drawing down the cash. “When we revisit it, if there are other infrastructure schemes available that give the necessary return and are cost effective, then that’s when i guess we would be looking to invest in those areas,” says Burrow.

Any infrastructure investment would also have to be assessed on how it fits with the whole range of the fund’s investments. “The main driver is maximising the investment return for the benefi t of the fund members,” Burrow adds when discussing the scheme’s attitude towards putting money into local projects.

“We’d obviously have to make sure that there wasn’t any conflict of interest between the fund trustees and any local interest.”

Aside from avoiding any such conflict, the Burrow does not feel the fund’s strategies are constrained by the regulations, particularly since the scheme has opted not to take advantage of the loosening of the rules surrounding limited partnerships.

This article is part of a special report into local government pension schemes, produced in association with Aviva Investors