Social and community growth assets present a “clear opportunity” for the Local Government Pension Scheme (LGPS) to increase investment in the UK while supporting local economic development and delivering appropriate risk-adjusted returns, Pensions UK has said.

In a blog drawing on findings from its recent From commitment to deployment report, Pensions UK identified housing, infrastructure, utilities and essential services as areas that could provide long-term investment opportunities for pension schemes.

It argued these assets could generate stable and predictable income over extended periods, with some also offering inflation-linked characteristics that aligned with pension scheme liabilities and supported member outcomes.

Investment in these areas could also contribute to regional economic growth, job creation and improved living standards in the communities where LGPS members live and work.

Pensions UK content manager, Matthew Williams, said social and community investment offered schemes a way to support both members’ financial outcomes and the wider environment into which they would retire.

However, he stressed that the key challenge was not necessarily encouraging schemes to invest, but making opportunities available through structures that pension funds could access efficiently.

One of the most significant barriers was the scale of individual projects, particularly in housing and regeneration, which were often too small or bespoke for larger schemes to invest in effectively.

Projects could also involve development, planning, construction and operational risks that pension funds were not always well placed to manage directly.

Pensions UK noted that schemes generally preferred to access private market assets through pooled funds, platforms or specialist investment managers, but social and community opportunities were not always packaged in a suitable or repeatable format.

A lack of coordination between public bodies, project developers, investment managers and pension schemes could also delay delivery and make it difficult to establish a scalable pipeline of investable projects.

“Overall, increasing investment in this area is less about encouraging schemes to take part, and more about making sure that opportunities are available in a form that allows them to do so,” Williams added.

With this in mind, the organisation recommended that schemes first consider how social and community investments would fit alongside other private-market assets and within their wider investment strategy.

Pensions UK also encouraged schemes to prioritise opportunities that could be delivered at sufficient scale, including projects forming part of wider investment programmes or platforms rather than isolated developments.

It highlighted LGPS pooling as a potential enabler, allowing several funds to combine their capital and access opportunities that might otherwise be too large, complex or resource-intensive for an individual scheme.

The From commitment to deployment report included a case study on LGPS Central, demonstrating how pooling could increase scale and provide access to a broader range of private-market investments.

Pooled and intermediated structures could also reduce the governance burden on schemes, it argued, providing access to a pipeline of opportunities and placing day-to-day risk management with specialist partners.

Pensions UK observed that successful structures often involved managing or reducing development, planning, or construction risks before pension capital was committed.

For instance, housing or real estate investments could be structured so that schemes invest after important development milestones have been reached, making the risk profile more suitable for institutional investors.

Schemes should also maintain diversification across social and community assets, it warned, rather than concentrating exposure in one sector.

“Social and community growth assets present a clear opportunity, particularly for the LGPS, to increase their investment in the UK in a way that supports local economic development and delivers appropriate risk-adjusted returns,” Williams concluded.

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