On Tuesday the UK government was expected to reveal plans to raise the amount that local councils can invest in limited partnerships, including real estate funds, through their pension funds from 15 percent of assets under management to 30 percent.
Currently, there is around £150 billion (€187 billion; $240 billion) residing in local council pension funds. This means that, with the current cap set at 15 percent, around £22.5 billion is potentially available for investment in limited partnerships. By raising the cap to 30 percent, another £22.5 billion will be freed up – making £45 billion in total.
Limited partnerships are the vehicles through which local council pension funds make most of their investments in private equity, property and infrastructure. Because many of these funds have already invested up to the 15 percent limit, they have no scope to release money for further investment in these alternative assets – which is what the government would like them to do.
A consultation on the issue, which will effectively be launched Tuesday, is expected to run until the middle of December.
The National Association of Pension Funds (NAPF) welcomed the move. “We are pleased that the Government wants to increase or remove the limits that local authority pension funds can invest in infrastructure,” said NAPF chief executive Joanne Segars in a statement. “This has the potential to remove a key barrier that is preventing some local authority pension funds from investing in this important asset class.”
However, Segars cautioned: “Lifting this limit would remove one barrier, but there are wider issues that need to be addressed. The Government needs to undertake a comprehensive review of the local authority pension fund investment regulations to ensure that funds can act in the best interests of their members and council tax payers.”