UK – A London local authority has called for the complete removal of "overly prescriptive" investment restrictions on local government pension schemes (LGPS) to be replaced by a prudential system.

The call, from the £1bn (€1.2bn) London Borough of Camden pension fund, comes in direct response to a government consultation on how local authority funds' investment regulations could be amended to allow for greater exposure to infrastructure.

The consultation by the Department for Communities and Local Government (DCLG), which closed in December, sought to ascertain if infrastructure should be introduced as a standalone asset class with a maximum 15% allocation, or if the limits on investment in limited partnerships – often the legal basis of investment funds – should be doubled to 30%, allowing greater room for manoeuvre.

Camden said it was in favour of a complete change to current investment restrictions.

A report by director of finance Mike O'Donnell noted that Camden had recently been forced to seek an exemption from the guidelines after holdings from a diversified growth fund managed by Barings breached a 10% cap on investment in unlisted securities, which legally can be increased to 15%.

The report added that the current investment categories did not reflect different asset classes but how investment vehicles were structured.

"DCLG recently ran consultation on reviewing the Investment Regulations, which sought to alter the limits to aid investment in infrastructure," O'Donnell's report continued.

"Camden's response was that the limits on investment should be removed entirely, as they are overly prescriptive, and investment risk would be better managed through a more prudential system of diversified asset allocation."

In a separate report from the same committee meeting, O'Donnell noted that the outcome of the DCLG's consultation was not known, but that it was "expected" that regulations would be relaxed.

He also noted that there was a "great deal" of interest in infrastructure, and that the fund would review its preliminary 5% allocation to the asset class once it had completed an upcoming valuation and reconvened in November.

O'Donnell also stressed that the fund must rule out "Camden-specific" infrastructure investment purely on diversification and risk grounds.

The report, discussing last year's Smith Institute report on how the LGPS could stimulate growth through investment, concluded: "The fund should also consider all infrastructure investment proposals and not limit these to local schemes but rather seek out the best risk-adjusted returns that meet the fund's needs."

Local authority funds to commit to local infrastructure investments or offer loan facilities have largely been limited to those with a greater geographic footprint, such as a £25m joint venture project by the Greater Manchester Pension Fund to construct housing in Manchester's city centre, or a debt deal by the largest UK LGPS, Strathclyde, to extend a credit line to an athletes village for the upcoming Glasgow Commonwealth Games.

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