Before you get stuck in
Jill DavysHead of LGPSFind me on LinkedIn
Welcome to our winter edition of LGPS Spotlight; I can’t believe we are already 1/12th the way through the year already, how did we get to the end of January so quickly?
Reflecting on 2022, and what a year! We saw inflation hit over 10% and yes, I can remember when it was last that high, interest rates rocketed, major conflict in the West, 3 prime ministers in the UK, and experienced an LDI crisis to name but a few.
While we can all hope for a slightly less eventful 2023, it’s likely to be a very busy year for LGPS, with valuations to finalise, strategic asset allocation (SAA) reviews, the advent of TCFD reporting (the reports may not be required until end of 2024, but this isn’t something you can wing at the last minute!), not to mention ongoing admin challenges including McCloud, GMP and Dashboards. Plus, I suspect a lot of funds are growing ever more conscious of cashflow challenges, particularly with a c.10% benefits increase to pay from April – the need for investment income will focus high on the priority list.
Looping back to TCFD, we finally received the consultation (you can read our response here) and I’m holding out hope that we’ll get a response and new regulations in place for Easter (although I’m definitely not holding my breath). Of course, we recognise that TCFD is very much an endpoint. Thinking more broadly about climate change continues to be at the forefront of most LGPS funds’ thinking as they increasingly look to set net-zero targets. With that in mind, I thought a useful article to feature is some research that our Manager Research team have recently conducted around how investors can support the energy transition. So, thanks to Celine and Lackshana for their rather timely piece on the investment opportunity that exists within the infrastructure that supports renewables.
Given the increased focus on income likely to follow from SAA reviews, it’s time to think more about your fixed income allocations, how to apply a sustainability lens and whether ESG can indeed be integrated within fixed income portfolios. Our Responsible Investment Q&A this edition is with Redington’s Fixed Income Director, Chris Bikos.
Sticking with fixed income, our Water Cooler Chat this month is with Javier Arias, who specialises in emerging market debt and investment grade corporate (not natural bedfellows, or perhaps they are).
If, like me, you sometimes wonder whether you’re in the same conversation with actuaries and quant specialists, we have an article for you! Our Head of ALM Research looks at some of the risk metrics that form part of SAA models and why it’s important to keep risk in focus when setting your strategy.
So what will 2023 bring? Inflation should start to fall back as oil and food prices stabilise, but it seems likely that we’ll have to live with higher inflation and interest rates for a while yet. How deep will any recession be? How long will strikes last? Will Donald Trump make it back to run as the Republican candidate? Will there be a negotiated peace between Russia and Ukraine (not looking hopeful)? Will we get the LGPS pooling and governance consultations? These are the questions at the front of my mind.
Wishing you all the very best for 2023, and if you need any support on your LGPS fund this year, please get in touch.
