Private markets head Nadeem Hussain talks to PMP about transitioning legacy assets and the LGPS investment pool’s next steps to optimise its strategies
LGPS Central has been progressively transitioning the management of the assets of its current eight Midlands-based LGPS partner funds, belonging to more than one million scheme members, for almost a decade.
The LGPS investment pooling process has been progressing for several years but has been gathering pace more recently, with the government requesting LGPS pension funds transition all their legacy assets to be under the control of a pool from 1 April 2026.
“We’ve gained significant momentum in the last couple of years, growing to over £7bn in assets under management. After receiving commitments from our partner funds, we undertake the investment activities on their behalf, across private markets,” says Nadeem Hussain, head of private markets, LGPS Central.
“We are in the process of transitioning legacy assets in various new forms, which will further expedite our growth, including into pooled products, where we have one, that meet the same strategy and objectives. Getting full oversight of these assets may be [done] without transitioning legal title, to avoid incurring unnecessary transition costs.”
When there is a decision to be made… we will undertake a detailed review on behalf of the partner fund and decide on the appropriate action to take.
Nadeem Hussain, LGPS Central
Transitioned assets still belong to the partner funds. “If one of our partner funds has invested into an external fund, there will be no dilution and the economic benefits will always remain with them. But while they retain ownership, the buy, sell and hold decisions as well as ongoing portfolio management and oversight transitions to the pool.”
The intention is to run the majority of these funds until their natural end, then reallocate the proceeds to a pooled product designed and managed by LGPS Central.
“For recent investments made by a partner funds, which may still be in their respective investment or value creation periods, such investments will run their agreed course, particularly if performance is in line with expectations” says Hussain.
“But when there is a decision to be made – for example whether to move into a continuation fund – we will undertake a detailed review on behalf of the partner fund and decide on the appropriate action to take.”
LGPS Central’s private markets investments are spread across OECD countries, with c.25% weighting to UK assets.It allocates to four asset classes: private equity (PE), private credit (PC), infrastructure and property. Within each asset class it has several funds, each with its own risk-return profile and strategy.
LGPS Central has both closed- and open-ended funds. PE and PC are closed-end, in line with the underlying investments. Infrastructure and property are open-end funds, as they can achieve some liquidity from the underlying investments. “If our partner funds need liquidity in those two asset classes, we can try to meet their needs,” says Hussain.
Characteristics and objectives
As a combined regional pool, LGPS Central’s underlying authorities are at different stages of their private markets journey. “We have one of the largest, but also some of the smallest, pension funds in the LGPS. The larger ones tend to have allocated to private markets over decades, while others have built up allocations to some private markets asset classes more recently,” says Hussain.
“Typically, a partner fund going into a new asset class may desire to enter at the lower end of the risk spectrum. As the fundamentals of the asset class and foundational characteristics are established, a phased approach to take on more risk can then be developed. One example is in infrastructure, where partner funds have opted for larger allocations to core and core-plus than value-add or opportunistic.”
LGPS Central does not have different return objectives for its individual partner funds within an asset class. “Partner funds understand the target returns and whether it could achieve their strategic objectives before they commit,” he says.
Existing partner funds may already have a lot of exposure to a particular asset class. “Property is a good example,” says Hussain. “Many LGPS funds have built their property portfolios over several years and are at the upper bounds of their strategic asset allocations.”
Portfolio strategy
LGPS Central has a unique model for private markets among the pools, according to Hussain. “We undertake all due diligence in-house, which not only includes fund investments but co-investments too, enhancing the cost savings that we are able to achieve and ability to grow portfolios selectively.”
The pool has received increased allocations to its private markets funds over the last five years and Hussain expects these to further increase. Its PE allocation has seen steady growth in the last couple of years, due to the market facilitating fewer distributions. “With less capital bring returned to our partner funds, re-investment activity has been somewhat constrained, but we remain optimistic about a resurgence in activity as distribution levels recover,” he says.
“Supported by elevated interest rates and favourable credit spreads, PC is generating strong risk-adjusted returns. We expect to continue increasing allocations to PC, although probably not at the same rate as in the past.”
The government’s Fit for the Future reforms will soon task pools with managing asset allocation for their partner funds. “We will regularly assess and quantify, with our asset allocation team, the merits of adjusting allocations to each asset class, to ensure alignment with partner fund objectives,” says Hussain.
Local advantage
The government has not mandated administrative authorities to allocate a specified percentage to local investments, but has asked pools to invest more in the region covered by the pool’s partners. “We are actively trying to identify opportunities through existing partnerships and, in the future, in conjunction with combined authorities and councils.”
It is not just the government encouraging place-based investing. “Pension committees and underlying members can identify with investments when they are locally invested and bring demonstrable benefits to their communities.” he adds.
The obvious downside of investing locally is that it concentrates risk geographically. Hussain therefore says extra care needs to be taken: “It’s got to stack up. The risk-adjusted returns must be commensurate with opportunities elsewhere.”
Fund facts
- Total AuM: £45bn
- Private markets allocation: £7bn
- First private markets allocation: Made in 2018 with early launches including the Global Equity Dividend Growth Factor Fund and the PE Primary Partnership
- Capabilities: A broad suite of public and private funds including direct and indirect property, private equity, private credit, and infrastructure
- Current private markets: Includes five PE LPs, six PC LPs, four infrastructure LPs and two property funds.
- Target allocation: Target allocations are dynamic and assessed regularly. Partner funds may adjust based on funding levels and strategic objectives