Over half (53 per cent) of Local Government Pension Scheme (LGPS) heads of fund and officers are ‘somewhat unconfident’ that there are sufficient investment opportunities in their administering authority area, research from Hymans Robertson has revealed.

The survey, which covered 24 LGPS funds across England and Wales, found that 26 per cent were ‘somewhat confident’, and 9 per cent ‘very confident’ when asked about confidence in the sufficiency of investment opportunities within their pool area.

In contrast, 47 per cent were ‘somewhat confident’ and 8 per cent ‘very confident’. Less than a fifth (19 per cent) were ‘somewhat unconfident’.

The survey also highlighted a lack of clarity on the definition of ‘local’ investment, with 48 per cent expecting it to mean investments in the pool’s authority area and 23 per cent expecting it to mean investments in the fund’s administering authority areas.

Twelve per cent expect it to be defined as investment in the UK generally.

Respondents said they were particularly concerned about local investment due to a lack of opportunities, possible increased risk or the investments leading to reduced returns and pressure to invest in projects that may not meet investment criteria, yet they do present an opportunity to make progress around local authority priority areas.

Additionally, they also flagged implementation challenges, governance and due diligence, government clarity and reputation risk as other concerns around local investment.

Another area of uncertainty highlighted by the survey was how to structure their funds' local investments, with over half (52 per cent) claiming they had not yet decided on the structure of their local investments.

Of those who had decided, 27 per cent plan to create a standalone allocation within the fund’s strategic asset allocation, while 21 per cent intend to embed local investments within existing asset classes.

In terms of the allocation of assets to local investment, 58 per cent of respondents expect to allocate 0-5 per cent of assets to local investment within two to three years, with 25 per cent targeting 5-10 per cent.

The average expected proportion of the LGPS assets allocated to local investing is 4.6 per cent, equating to around £18bn.

Expectations of the asset classes that respondents expect local investment to fall under also varied, but private market investments were the most frequently cited category, voted by 50 per cent of respondents.

The survey also showed that collaboration across stakeholders is “key”, but the way to collaborate varied.

Over four in 10 (43 per cent) of respondents said they would prefer to collaborate on a broad level through general strategic priorities without specific projects, while 29 per cent preferred to collaborate through specific investments or a local authority investment fund.

A fifth (20 per cent) said both general strategic priorities and specific investments, and 8 per cent said they were to be determined.

The report also showed mixed confidence in pools' capacity and expertise to scrutinise local investment opportunities, with only 6 per cent saying they were ‘very confident’ to do so.

In addition to this, 23 per cent said they were ‘somewhat unconfident’, 19 per cent said they were ‘very unconfident’, 31 per cent said they were ‘somewhat confident’, and 21 per cent said ‘neither confident nor unconfident’.

When asked if they believe it is important that funds have the option to do their own due diligence on local investments, 62 per cent said yes.

In terms of their fund’s time and capacity to implement local investment, the largest group (42 per cent) said they were ‘somewhat confident’.

Despite the survey highlighting low confidence in several areas, 33 per cent of LGPS respondents said they embrace the opportunity of local investing.

The government’s Fit for the Future consultation outcome - part of its wider programme of pension reform - focuses on consolidating schemes.

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