The government needs to make it easier for the Local Government Pension Scheme (LGPS) to invest in the UK in order to “unlock” its full potential, Local Pensions Partnership Investments (LPPI) has said.

Following on from the launch of a "landmark" pensions review, Chancellor, Rachel Reeves, recently highlighted Canada's 'Maple Eight' as a potential example for public pension fund consolidation.

Analysis from LPPI has since suggested that the government could indeed unlock "billions" in extra investment capital for the UK if the LGPS adopted the appropriate lessons from Canada’s Maple 8.

The analysis suggested that up to £16bn worth of capital for infrastructure investment could be unlocked if all the funds in the UK LGPS raised their allocation in the asset class from its current average of 6 per cent to 11 per cent - the same weighted average as the funds in the Maple 8 system.

“The Chancellor was right to showcase Canada’s Maple 8 funds as a model of success. Public pensions investment in the UK is several years behind some of the best practice examples we’ve seen in places like Canada and Australia," LPPI chief investment officer, Richard J Tomlinson, said.

“We believe that presents a massive opportunity for the UK to take the best learnings from these regions and potentially avoid some of the mistakes and generate significant extra investment capital for the UK.

However, LPPI argued that any reforms will only be successful if the systemic barriers to investment holding LGPS back are also addressed, noting that there are a number of key characteristics that make the Candaian model more effective.

In particular, it explained that the Canadian model has more independent governance, whereas the UK would require Parliamentary approval on rule changes, as well as a greater focus on long-term value creation, which aligns investment decision making with the liability profile and investment goals of stakeholders.

The LPPI pointed out that the Canadian model also has greater allocation to private markets, with around 48 per cent of Canadian pension investments currently in private markets, compared to an average 20 per cent for the LGPS.

In addition to this, LPPI noted that the Canadian model also makes use of internal management, bringing a material proportion of investment management in-house, and delivering increased alignment and reduced costs.

However, it argued that, in the UK, investing in assets that will have the biggest impact on economic growth, such as infrastructure, real estate and growth capital, is often viewed as too risky for many pension funds, whose primary fiduciary responsibility is to generate sustainable risk-adjusted returns for their members.

Given this, Tomlinson argued that "we need a step-change in the pensions and investment policy environment to make investing in the UK more attractive".

He stated: "The government should continue on its path to planning reform, introduce formal incentives for investors in the UK, such as tax credits, and prioritise creating more domestic private market opportunities that deliver the long-term, stable returns many pension funds look for.

“Doing so will support economic growth, see more pension fund capital deployed into the renewable energy projects needed to support the UK’s clean energy transition, and make the government’s push for greater consolidation of LGPS funds far more impactful.

"Crucially, by focussing on “supply” of attractive opportunities the LGPS can be relied upon without compromising its long-term affordability for employers.”

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