William Eichler 13 June 2022

Local government pension schemes set to increase private investments

Local government pension schemes set to increase private investments image
Image: Andrii Yalanskyi/Shutterstock.com.

Local government pension funds are set to invest more in private markets due to increased confidence in the levels of transparency and a need to diversify, new research has revealed.

Alpha Real Capital, a specialist manager of secure income real assets, has surveyed Local Government Pension Scheme (LGPS) professionals and found that 91% believe the funds they work for will increase their allocation to private markets.

The majority of the 100 LGPS fund managers who took part in the research (60%) think their allocation will rise by between 5% and 10%.

Alpha says this is part of a trend of institutional investors increasing their allocation to illiquid assets, such as real estate and infrastructure, which are providing increasingly attractive returns and diversification benefits.

An Alpha study carried out last year with 100 UK professional pension fund investors by the specialist real assets manager found schemes already have substantial allocations to illiquid assets – around 58% of investors said their scheme allocated up to 25% to illiquid assets as part of their investment strategy, and 37% said they allocated up to 10%.

The study found the main reason for increasing interest in illiquid assets is greater transparency around the asset class - 79% of those pension professionals surveyed last year said that they planned to increase allocations because of this.

However, 69% said increased opportunities to invest in illiquid assets is driving interest, and 44% of those questioned said they are increasing allocations to illiquid investments because of a growing desire to diversify their portfolios.

Boris Mikhailov, head of client solutions Alpha Real Capital, said: ‘Private markets, and in particular secure income real assets, are growing in popularity amongst LGPS Funds as they offer the potential to provide secure, inflation-linked cashflows to help meet liabilities in an inflationary environment. It is also important to note that secure income real assets like social or renewable infrastructure have quantifiable and measurable ESG benefits. It is possible to invest in these assets to help with ‘E’ or ‘S’ in ESG without sacrificing much needed investment performance.’

Phillip Rose, CEO Alpha Real Capital, said: ‘Globally, private markets rallied to new heights in 2021 with a significant rise in fundraising, and assets under management (AUM) grew to an all-time high of nearly $10 trillion. Given the many attractions of private markets such as long-income real estate, social infrastructure and renewables infrastructure, including predictable income, inflation linkage and low volatility, we expect LGPS to significantly increase their allocation to these asset classes over 2022 and beyond.’

SIGN UP
For your free daily news bulletin
Highways jobs

Director of Public Health

Royal Borough of Greenwich
Up to £131,210
The Public Health department is at the heart of the council’s business. Greenwich, London (Greater)
Recuriter: Royal Borough of Greenwich

Head of Regeneration and Growth

Plymouth City Council
£68,387 - £74,411 (MFS and relocation available, pay award pending)
This is a unique opportunity to lead our award-winning development team and directly deliver hundreds of millions of pounds of projects. Plymouth, Devon
Recuriter: Plymouth City Council

Director of Adult Social Care

Wiltshire Council
£119,390 - £127,137
Join us as the Director of Adult Social Care and make a real difference to people’s lives. Wiltshire
Recuriter: Wiltshire Council

Assistant Director Planning, Performance & Engagement

East Sussex County Council
up to £97,700
With strong local communities, unspoilt countryside and vibrant coastal towns, East Sussex offers an exceptional quality of life to many. East Sussex
Recuriter: East Sussex County Council

Director of Finance & Commerce

Lancashire County Council
Up to £114,339
You will play a critical role in driving the organisation through complex change and innovation. Lancashire
Recuriter: Lancashire County Council
Linkedin Banner