Investment

The value of LPFA’s pension fund (the ‘Fund’) was £5.6 billion as at 31 March 2018

LPFA’s overarching fiduciary duty is to ensure we have sufficient assets available to pay members all the benefits as they fall due. To fulfil its duty, the LPFA Board approved an Investment Strategy Statement (ISS) in October 2016 which clearly sets out the Fund’s investment objectives and policy as follows:

  • maximise the returns from investments whilst keeping risk within acceptable levels and ensuring liquidity requirements are at all times met;

  • contribute towards achieving and maintaining a future funding level of 100%; and

  • enable employer contribution rates to be kept as stable as possible

The ISS also sets out the Fund’s strategic asset allocation framework and its commitment and approach to responsible investment. The LPFA Board reviews the ISS on a regular basis and at least every three years.

The day-to-day investment implementation and management are delegated to Local Pensions Partnership Investments Ltd (LPPI) which is authorised and regulated by the Financial Conduct Authority (FCA). LPPI is a fully-owned subsidiary of Local Pensions Partnership Ltd (LPP) formed following the collaboration between LPFA and Lancashire County Pension Fund (LCPF). Investment performance are reported annually in LPFA’s annual report

As an active shareholder in LPP, the Board’s role is to ensure that LPP and LPPI remain accountable and provide the necessary assurance to LPFA, its employers and members that LPFA continues to benefit from this delegation arrangement.

 

Strategic Asset Allocation

The LPFA Board is responsible for setting the high level investment objectives and risk tolerances of the Fund, with the advice provided by LPPI. The Board sets, in conjunction with the Fund’s actuary, the required rate of return needed to achieve the Fund’s investment objectives and the risks it is willing to take.

LPFA’s asset allocation framework allocates capital across a total of eight asset classes combined to form the policy portfolio. Each asset class has its own specific investment objective, and within each asset class there are a number of constraints to allow for intra-asset class diversification, including sector, country, manager, and maximum exposure to a single asset. 

 


Investment Governance

Day-to-day implementation and monitoring of the Board’s high level investment objectives are delegated to LPPI in line with the principle of asset pooling within the LGPS. 

LPFA’s role is to ensure that LPPI has appropriate and sufficient risk monitoring and management processes in place to perform its duties and to manage the Fund in accordance with the ISS and the Funding Strategy Statement.   

The Board will monitor the performance of LPPI and the portfolio through regular reporting and discussion. 

Risk Management 

The function of the LPFA’s Audit and Risk Committee is to monitor the operation of internal control, governance, risk and compliance arrangements. As part of this, the Committee is tasked with monitoring risk management systems including reviewing the risk framework and processes used to monitor the Fund’s risks. LPPI provides LPFA with asset and liability risk management services that include reporting covering risk exposures, scenario and sensitivity analysis. LPPI also provides employer risk services to manage risks associated with employer covenant.