Asset and Liabilities Management

Our main investment objective is to ensure that over the long-term, the Fund has sufficient assets to meet all pension liabilities as they fall due. The adoption of asset and liability modelling is the key to prudent pension fund management.

This is something we are working hard at delivering at the LPFA and was the central theme in the LPFA’s recent submission to the DCLG on the future structure of the LGPS. Our proposal for Super Pools is based on Asset and Liability Management (ALM). Without a clear understanding of what your liabilities are you cannot manage your assets to deliver appropriate cash at the correct time to pay your pensions liabilities.

We are developing a coherent, long-term asset and liability modelling platform from which assets and liabilities can be managed effectively. We are creating quantitative models and in-house products to maximise investment returns in line with this strategy. Investment flexibility allows LPFA to maximise investments on return-seeking assets to close the deficit whilst meeting the cash flow requirements by investing in cash flow generating assets intelligently.

As part of our ALM plan, we've also placed more emphasis on managing our member and employer data. Data cleansing has reduced our liabilities by more than £8 million in the past 12 months. For example, tracing members who have a residual refund liability that remained unclaimed has saved the fund over £900,000. We are offering this service to other LGPS funds.

Our ultimate aim is to be able to generate up to date and frequent asset and liability information so we can manage them intelligently. To this end, we are already able to understand our liabilities better than before and an internal system to fully integrate the modelling of our assets and liabilities is progressing well.