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Alternative Market Briefing

British pensions' report criticises allocations to alternatives

Monday, November 12, 2012

Beverly Chandler, Opalesque London: A report from The Pensions Institute, authored by Dr Debbie Harrison, Senior Visiting Fellow of the Pensions Institute, and David Blake, Director of the Institute and Professor of Pensions Economics at Cass Business School finds fundamental flaws in the investment governance of the majority of London’s 34 local government pension schemes (LGPSs).

The key findings of An Evaluation of Investment Governance in London Local Government Pension Schemes reveal substantial weaknesses in the governance processes by Local Authority pension committees, including the fact that "pension committees demonstrate a strong preference for active, rather than cheaper passive asset manager solutions". This, the report finds, adds cost without evidence of the benefit of long-term outperformance. "Certain committees also allocate substantial allocations to alternative asset classes that appear excessive relative to the scheme size, again adding to administrative costs, but also increasing risk without demonstrating commensurate rewards" the report says.

Other weaknesses include the fact that elected councillors dominate pension committees and the decisions they make, but their experience and expertise is severely limited by the four-yearly election system; evidence from committee meeting minutes indicates that too few challenge the advice from their actuarial and investment ......................

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