{"id":19342,"date":"2024-06-11T11:37:06","date_gmt":"2024-06-11T10:37:06","guid":{"rendered":"https:\/\/www.isio.com\/?post_type=news&p=19342"},"modified":"2024-06-11T11:37:07","modified_gmt":"2024-06-11T10:37:07","slug":"employer-asset-allocation-dilemma-as-lgps-funding-hits-new-high","status":"publish","type":"news","link":"https:\/\/www.isio.com\/news\/employer-asset-allocation-dilemma-as-lgps-funding-hits-new-high\/","title":{"rendered":"Employer asset allocation dilemma as LGPS funding hits new high"},"content":{"rendered":"\n<section class=\"text-wrapper text-block medium-width \">\n <div class=\"container\">\n <div class=\"acf-innerblocks-container\">\n\n<p><strong>Record equities and gilts divergence highlights the advantages of employer-specific investment strategies, including for fund mergers<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>Isio\u2019s LGPS Low-Risk Funding Index reveals an increase from 109% to 110% over the period 30 April 2024 to 31 May 2024 \u2013 a new high, up from 67% at 31 March 2022<\/em><\/li>\n\n\n\n<li><em>The latest funding improvements come as the difference between equity and gilt returns reaches its widest point since 31 March 2022, the time of the last actuarial valuation<\/em><\/li>\n\n\n\n<li><em>This highlights more than ever the benefits of having an option for LGPS employers to de-risk their own investments<\/em><\/li>\n\n\n\n<li><em>With fund mergers firmly on the agenda, Isio believes that employer-specific investment strategies will facilitate scheme mergers and enhance the sustainability of the LGPS<\/em><\/li>\n<\/ul>\n\n\n\n<p><strong>11 June 2024: <\/strong>The latest release of Isio\u2019s Low-Risk Funding Index reveals the aggregate funding level for the 87 funds participating in the Local Government Pension Scheme (LGPS) in England and Wales has improved from 109% at 30 April 2024 to 110% at 31 May 2024. <br><br>The improvement is primarily due to increases in asset values (mainly equities), partially offset by small reductions to UK government gilt yields. Of the 87 participating funds, 59 have funding levels of 100% or higher, with levels ranging from 69% to 164% funded. <br><br>At the previous actuarial valuation date, 31 March 2022, the aggregate low-risk funding position was 67% and none of the 87 funds had a funding level of 100% or higher on a low-risk basis.<\/p>\n\n\n\n<p>Equity markets continue to perform well and gilt yields remain at very high levels, and in May the difference between the returns on equities and gilts reached its widest point since 31 March 2022 (the last actuarial valuation date). LGPS funds may question whether remaining in equities will deliver the performance they need, or if gilts are better to help them lock in funding levels, with different answers for different funds depending on their overall funding level.<\/p>\n\n\n\n<p>Each LGPS fund is made of many employers, each of which have their own funding position, which is different to the average for the fund. Employers who are over 100% funded on a low-risk basis may have a different view on whether to stick with equities compared to employers who still need to make up ground through investment outperformance or more cash contributions.<\/p>\n\n\n\n<p>If LGPS funds could offer their employers the ability to choose their own investment strategy on a more widespread basis it would avoid their employers exiting the LGPS unnecessarily, or the regret risk should markets move back to where they came from. While it might not be possible to do this quickly, Isio is recommending it is considered for future agility.<\/p>\n\n\n\n<p>The LGPS continues to attract attention from the UK Government, with a particular focus on having much fewer schemes. The most commonly stated barrier to this is a lack of local investment control for councils, and so employer-specific investment strategies in new, merged schemes would provide the best balance between local control and operational efficiencies.<\/p>\n\n\n\n<p>Isio has identified eight benefits of employer-specific investment strategies<sup>1<\/sup>. It believes they will:<\/p>\n\n\n\n<ul class=\"wp-block-list\" start=\"1\">\n<li><strong>Put employers at the heart of the LGPS\u2019s future<\/strong><\/li>\n\n\n\n<li><strong>Ensure investment strategies are tailored to funding strategies<\/strong><\/li>\n\n\n\n<li><strong>Address the risk of not de-risking<\/strong><\/li>\n\n\n\n<li><strong>Reduce employer exits<\/strong><\/li>\n\n\n\n<li><strong>Pave the way for fund mergers<\/strong><\/li>\n\n\n\n<li><strong>Remove the \u201cpostcode lottery\u201d<\/strong><\/li>\n\n\n\n<li><strong>Support the levelling-up agenda and UK investments<\/strong><\/li>\n\n\n\n<li><strong>Protect the LGPS from being used as a sovereign wealth fund<\/strong><\/li>\n<\/ul>\n\n\n\n<p><br><strong>Steve Simkins, Partner and public services leader at Isio, says:<\/strong> \u201cThe LGPS currently faces a structural issue in relation to its investments. No pension schemes planned for the huge increases in UK government gilt yields in 2022, which led to an immediate liquidity crisis for private sector schemes. And now the LGPS is facing its own challenge which has played out more slowly and is coming to a head. <\/p>\n\n\n\n<p>\u201cThe current equity and gilt market divergence will cause LGPS funds to consider whether they stick with equities or switch to gilts. This is a significant risk decision on behalf of their employers, who are not all the same. Most councils might play the long game, but other employers who have been asked to pay more contributions might want to lock into their surpluses. This highlights the \u201cpostcode lottery\u201d for employers whose investment strategy depends on the fund they are in, only some of which offer a lock-in option.<\/p>\n\n\n\n<p>\u201cNow would be an ideal time for all LGPS funds to be able to introduce employer-specific investment strategies. There is only so much that can be done quickly, demonstrating that the ideal LGPS fund of the future would be agile and able to offer this in readiness for another unexpected market change.<\/p>\n\n\n\n<p>\u201cAt the same time, pressure is being applied by the UK Government for funds to create efficiencies through fund mergers. The most common point of resistance to mergers is the loss of local controls over investments. However, if each council could continue to have a say over its investment strategy in the scheme, this barrier is removed.\u201d<\/p>\n\n<\/div>\n <\/div>\n<\/section>\n\n\n\n\n <section class=\"bg-grey-dient\">\n <div class=\"pt-20\">\n <div class=\"container grid md:grid-cols-2 md:gap-36\">\n <div>\n <h2 class=\"text-brandGreen-100 text-[2.875rem] font-semibold mb-12 leading-[4.25rem] md:text-[4.75rem]\">Get in touch <\/h2>\n <\/div>\n <div>\n <p class=\"text-black text-[1.1875rem] font-normal mb-4\"><\/p>\n <\/div>\n <\/div>\n <\/div>\n\n\n <div class=\"container hidden md:block pt-16 pb-10\">\n <div class=\"flex flex-row justify-start\">\n <div class=\"text-black transition-opacity duration-500\">\n <img decoding=\"async\" class=\"h-72 w-72 mx-auto rounded-full max-w-none mb-5 object-cover\" src=\"https:\/\/www.isio.com\/app\/uploads\/2023\/11\/Steve-simkins.jpg\" alt=\"Image\">\n <strong class=\"text-brandGreen-100 text-[1.175rem] font-medium\">Steve Simkins<\/strong>\n <p class=\"text-black text-lg font-light mb-2\">Partner<\/p>\n <p class=\"text-black mb-3\"><\/p>\n <p class=\"text-black text-lg font-light\"><\/p>\n <a class=\"text-brandGreen-100 block hover:underline text-lg font-light\" href=\"mailto:steve.simkins@isio.com\">steve.simkins@isio.com<\/a>\n <a href=\"https:\/\/www.isio.com\/person\/steve-simkins\/\" class=\"mx-auto btn-primary btn-outline mt-10\">See full profile<\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n\n\n\n\n <div class=\"hidden md:block container text-center pt-5 md:pb-40\">\n <a class=\" mx-auto btn-primary \" href=\"\/our-people\">Our people<\/a>\n <\/div>\n \n\n\n <\/section>\n \n <section class=\"md:hidden bg-grey-dient pt-10\">\n \n <div class=\"container quoteSwiper overflow-hidden\">\n <div class=\"flex justify-center w-full pt-16\">\n <div class=\"\">\n <div class=\"text-black transition-opacity duration-500 flex flex-col justify-center\">\n <img decoding=\"async\" class=\"h-72 w-72 mx-auto rounded-full max-w-none mb-5 object-cover\" src=\"https:\/\/www.isio.com\/app\/uploads\/2023\/11\/Steve-simkins.jpg\" alt=\"Image\">\n <strong class=\"text-brandGreen-100 text-[1.175rem] font-medium\">Steve Simkins<\/strong>\n <p class=\"text-black text-lg font-light mb-2\">Partner<\/p>\n <p class=\"text-black mb-3\"><\/p>\n <p class=\"text-black text-lg font-light\"><\/p>\n <a class=\"text-brandGreen-100 block hover:underline text-lg font-light\" href=\"mailto:steve.simkins@isio.com\">steve.simkins@isio.com<\/a>\n <a href=\"https:\/\/www.isio.com\/person\/steve-simkins\/\" class=\"mx-auto btn-primary btn-outline mt-10 items-center \">See full profile<\/a>\n <\/div>\n <\/div>\n <\/div>\n \n \n <\/div>\n\n <div class=\"md:hidden container text-center mt-20 mb-8\">\n <a class=\" mx-auto btn-primary \" href=\"\/our-people\">Our people<\/a>\n <\/div>\n \n<\/section>\n\n\n\n ","protected":false},"excerpt":{"rendered":"","protected":false},"author":3,"featured_media":16917,"template":"","meta":{"_acf_changed":false,"footnotes":""},"news-category":[38],"class_list":["post-19342","news","type-news","status-publish","has-post-thumbnail","hentry","news-category-press-releases"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.8 (Yoast SEO v23.8) - 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