CMA review - is it relevant to the LGPS? - KPMG United Kingdom
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Is the Competition & Markets Authority review relevant to Local Government Pension Schemes?

Is the CMA review relevant to LGPS?

These are the top two considerations for LGPS funds within the CMA review.


Partner, Investment Advisory

KPMG in the UK


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It is fair to say that the Competition & Markets Authority (CMA) review has not had the same profile in the public sector it has had in the private sector. This is not unreasonable as some of the high level CMA recommendations, for example around the regular review of appointments, are already baked in the approach that Local Government Pension Scheme (LGPS) funds have long observed, including to support full, fair and transparent procurement of service contracts. The CMA recommendations are a great endorsement for LGPS funds. The CMA review is essentially saying that best practice for the private sector should look more like the approach that the public sector already takes. It could be easy for LGPS funds to be complacent, especially as their use of fiduciary or delegated investment approaches through integrated advisers is virtually (if not actually) zero.

Well yes, for example regarding your investment consultant and their business model

There are some important considerations for LGPS funds in the CMA review, the two most prominent being:

  1. The CMA’s final report states it will require pension trustees to set objectives for their investment consultant, in order to assess the quality of investment advice they receive. The KPMG Public Sector Investment Advisory team believes this is best practice, and should be adopted by all LGPS funds where there is no such formal process already in place. 
  2. Whilst LGPS funds’ use of integrated advisers’ delegated and fiduciary management services is limited, LGPS funds should be aware of their investment advisor’s business model and the implications for them in terms of their advisory firm’s effective management of potential conflicts of interest - capacity constrained illiquid investments being one obvious area where there may be issues.

And, maybe it’s even more relevant than it first seems

There is also potentially a more subtle consideration regarding the ongoing implementation of investment pooling in England and Wales. The English and Welsh Administering Authorities’ relationships with their eight investment pools are complex. I appreciate I am over-simplifying here, but they are at the same time both shareholders in, and amongst the largest customers of, their respective investment pools. Also, investment strategy objectives are set locally at the fund level and then the actual implementation is delivered at arms-length by an investment pool. On the face of it this looks a lot like a fiduciary or delegated approach… doesn’t it?

Further guidance has recently been forthcoming from the Ministry of Housing, Communities and Local Government regarding the objectives of investment pooling in England and Wales. This is the single most important development and the only update since the original guidance was released by the Government in November 2015. I believe it is therefore important that the Administering Authorities and investment pools carefully consider their responsibility to all of the stakeholders in the LGPS funds/ investment pools.  

Key takeaways

The setting of meaningful and measurable objectives for your investment consultants and a thorough understanding of their business model, how they will manage potential conflicts of interest and the potential implications for you, are important considerations.  

Whilst not covered by the CMA review, on a number of levels the investment pools in England and Wales might be considered fiduciary or delegated investment models, at least by the thousands of employers in these LGPS funds. Whilst the dynamic is very different, it is important to ensure that there is a robust governance framework and independent oversight of your pool. 

For more information, please contact David O'Hara or Dave Lyons.

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