Jonathan Williams warns of the undue influence of 'political considerations' on UK pension funds.
Richard Greening, a councillor for one of London's boroughs, recently said he had a political preference for pension investments that boosted the country's economy.
This, in itself, is not surprising – and his comments will join the chorus of national and European officials urging pension funds to invest in the future, in growth, in housing and infrastructure.
However, the difference between Greening and most others is that he is one of a number of councillors who oversees Islington's £810m (€955m) local government pension scheme (LGPS).
Greening, speaking at a conference in London last month, was discussing the fund's £20m investment in UK housing, marking one of the first domestic funds to commit to residential property. The investment, with Hearthstone Investments, will be closely watched by a conservative industry that has so far proven unwilling to embrace an asset class historically very popular with its Dutch, Swedish and German counterparts.
The question is not whether investing in residential property is right. The question is the worthiness of one of the cited motivations.
"We have a political preference for investments that stimulate the UK economy," Greening said.
"The chancellor has expressed an interest in this, so it seems reasonable that pension fund trustees, council members of the committee should also be interested in that topic."
Given that Islington weighed up its options for well over a year prior to investment, one can rest assured of proper due diligence being conducted.
However, some will question whether a person acting as a fiduciary – in the absence of trustees due to the structure of the LGPS – should allow political considerations to form part of the equation, period.
The structure of LGPS oversight has been subject to debate recently, with looming reforms offering the potential to regulate precisely who sits on council pension sub-committees.
Speaking at the same event as Greening, Steve Dainty of LGSS said he "despaired" upon hearing a councillor and member of a fund's pension committee argue that his duty was to represent the interests of his council and constituents.
"No, they are not," he insisted. "They have got a fiduciary duty to their membership – and it doesn't matter how often you tell them, they always come back to that."
Howard Pearce, until recently the head of the Environment Agency, was one of those who viewed the coming LGPS reforms as an opportunity to mandate who sits on a pensions committee, thereby strengthening governance arrangements.
He said the variety of committee members across councils had been "one of the governance failures" of the system.
Political "encroachment" onto pension assets is not a problem unique to the UK – as evident by precisely that term being used by the OECD in a report on the Irish pension industry – but it is a battle that needs to be fought.
As Roger McCormick, head of the London School of Economics' Sustainable Finance Project, recently told IPE, the debate around fiduciary responsibility cannot help but be political.
It is for precisely this reason advocates must focus around the substance of long-term investing – whether investment that may not immediately pay dividends should be allowed, or whether investments that reduce pollution are beneficial because they can help ensure a better world for the member in future – and not be influenced by political considerations over short-term growth objectives.
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