The Local Government Pension Scheme (LGPS) has said it is under pressure from government officials to switch to passive management after the suspension of the Woodford Equity Income fund in June.
LGPS, which is the largest public-sector pension scheme in the UK with almost 6m members, has 60 per cent of its holdings in active funds.
The active investment industry has come under pressure due to disappointing performances among other reasons and Jeff Houston, secretary to the LGPS advisory board, said the scheme had been called on to shift out its active fund managers in the wake of the Woodford suspension, the Financial Times reports.
“There are elements within government that want the LGPS to be passive and are trying to find a way for that to happen,” Houston told the FT. “There is a belief we are forgoing savings by not going passive.
“Things like Woodford come along and you get that knee-jerk regulatory reaction . . . the easiest thing is to just stop them having that ability to invest in actives.”
Houston said the £275bn scheme had been pressed to move listed assets to passive management by government on the basis of a 2013 analysis by Hymans Robertson which suggested it could save £240m a year in investment fees and £190m in transactions fees.
“Understandably there are people within government going why haven’t you done that [moved to passives],” said Houston, but added he was not convinced it would mean better returns for the 5.8m public-sector workers.
In a statement, the Treasury said: “Decisions on investment strategy and asset allocation are taken locally by individual Local Government Pension Scheme funds.”
In its latest annual report, LGPS praised the performance of its active global equity managers for 2018 on the back of two disappointing years.
It said average global equity portfolio was more than two per cent up on its index.
“The funds in the top decile of performance in the last year were all managed in part by Baillie Gifford,” the LGPS added.