So far, the strongly focused British investment firms in the country can largely ignore the waxing and abatement of the ESG war on the other side of the Atlantic. But things may change.

The British political story of the past few weeks is a fierce attack on the reformed local elections in Britain, with Nigel Farage's populist insurgency ensuring a 30% share of the national vote, respectively.

The breakthrough in reforming the UK is not only crucial to the behavior of local governments across the country. It will also focus on the management of pension assets in the UK. According to our estimates, after the May 1 vote, reforms will control key roles, overseeing more than £100 billion of local government pension assets.

For beginners, the local government pension scheme in England and Wales (also known as LGP) is the largest funded pension scheme in the UK. The UK local authorities have £467 billion in assets.

As readers of FTAV dedicated can remember, the assets are subdivided into 87 different pots in England and Wales, with 11 more pots in Scotland, each of which is supervised by individual management authorities.

From the central government's perspective, this all looks so weird and inefficient that the continuous prime minister tries to force fund management capabilities. Therefore, there are more than half of the eight assets today, and the number of converged companies is expected to decline, while the proportion of LGPS assets will increase.

What does this have to do with the British reform? Well, each governing body has a pension committee, which consists of elected MPs and others. Did you know that there were suddenly many reforms in the UK? that's right. Electioned as a member of parliament.

Pension ability

We can understand why the local authorities' pension committee sounds like an absolute hit to snorefest, but it's actually a big deal.

Some of these committees may just be what pension officials tell them. But their actual power is important. The Pension Committee approved the investment strategy statement for each fund and sets up strategic asset allocation. The Pension Commission monitors the performance of the aggregated company and determines funding strategies. The Pension Board hires and fires the investment manager, custodian and consultant. Basically, this is the key committee to own local government pension assets.

Readers may find from the picture above that there are much more boards than administration. In fact, there are 317 councils and only 87 administrative authorities. Controlling some councils can almost translate into control over pension funds, while others may gain a seat on the pension committee.

Among all the pension funds that held elections on May 1, our slideshow ruled and the influence of reforms appeared to be huge.

We have borrowed and adapted Mainft’s cool local election interactive map to convey all the DEETs we analyzed below.

Hover over the council to see seats from different parties won in the May general election. Then hover over the red peak to see how many seats we think they will get on each of the management agencies’ pension boards, and the size of the assets under management, and so on:

Make up for all the administrations that look like there will be at least one reform committee on its pension board, and we have obtained the figures in the £100 billion north. This includes about £30 billion in assets supervised by the administration, and we believe the Reform Commission will have most pension board seats.

What will happen now?

Is there any LGP game plan for reform? We got in touch with Richard Tice, deputy leader of the UK reform, to find out. He pointed to his campaign to “awaken the investment of net-obsessed” which he believes is underperforming in parliamentary pension funds, the £862 million plan for the MPs’ plan, which is in a healthy surplus. He suggested that the sport is a model of the party's approach to pension assets.

"The net zero investment of the MP's pension funds is not enough to underperform, with 32% of its assets investing in liquidity that may be overvalued," TICE told FTAV. "This net zero obsession has put taxpayers on the hook of tens of millions of pounds."

We don't have performance figures that provide delivery for parliamentary pension funds, but indeed, "sustainable" funds usually underperform in H224. That is to say, the largest allocation record of the pension fund for members of Congress is the "Blackstone Low Carbon Fund" in the annual report. We understand that this refers to BlackRock's ACS World Low Carbon Screening and Optimized Equity Tracker Fund, where the returns are not completely terrible. The fund returns 22.1% in 2024 and 17.3% in 2023 - a few percentage points each year in full fat, the Undoke MSCI ACWI index leads several percentage points each year.

TICE told us that he did not trust LGPS investment performance, adding: “We will pay close attention to this and if these pension plans have a bigger deficit, I will be very grumpy because they are not performing well due to awakening investments”.

Tice may not have to worry about it. As we explained in February, LGPS funds appear to disappear once the three-year valuation is completed.

This will be the age before the March 2025 valuation cycle is completed, and we can report it as facts rather than guesses, but Isio (Investment Advisor) estimates that almost every fund was surplus at the end of last year, following their ultra-conservative measures, and if the official figures finally arrive, we would be shocked if the official figures don't look very meaningful.

But is the Council investing in what the UK reforms could be awakened, net zero nonsense? Almost certainly. Are some of them performing poorly? If they didn't, it would be a miracle. So, we hope TICE is very grumpy.

Staffordshire pension funds have a climate change strategy that says it is committed to obtaining asset portfolios with zero carbon emissions by 2050. The same goes for Nottingham, Kent and Derbyshire funds. We believe that each of these funds will be overseen by a committee composed primarily of British reform MPs, which are partly attributed to the commitment to cancel the net zero target.

Some of the allocated names stand out when gazing at Staffordshire’s annual report, and we suspect the reform sounds a little awake. About £317 million (more than 4% of its total fund) invested in Impax Asset Management, which looks like a sustainable global equity mandate. £467 million is invested in a strategy managed by LGPS Central, their combined company, based on potential awakening funds (“sustainable stocks” and “low carbon multifactor”).

While these products undoubtedly have an incredibly good performance spell at some point in their lives, several of them are in relatively relative amounts (high resolution):

The Pension Commission decides whether to terminate these tasks or let them continue.

All changes?

Back in November, the Ministry of Housing, Community and Local Government opened a nine-week consultation on LGPS pensions, including governance arrangements that should be included in the new legislation. We're still waiting to see where this will end, but the government's preferred landing site looks clear: Pool more assets, look more… Canadians? Specifically, the consultation will read that the administration:

The implementation of the investment strategy is required to be fully delegated to the swimming pool and to accept the main suggestions of its investment strategy from the pool… (and)…

The administration no longer manages a large number of multi-employer programs, but is more like a member of a large multi-employer program.

In terms of power, the consultation outlines a world where pension committees will set investment goals and take charge of investing, but will find their ability to hire and fire individual investment managers to deprive and hand over to the merger company.

With everything in the air, the reform commission’s control over LGPS pensions is likely to be a brief matter, with the upcoming pension bill authorizing the administration’s pension committees to be fully granted and tending to aggregate companies. But it is worth recalling that the merger company is owned and responsible by its clients. In the consultation, we don't see that this will change that.

Will Britain follow the U.S. leadership in awakening capitalist wars?

It's not difficult to see where this story can go.

Since 2021, when the Texas Senate passed SB 13, the bill prohibits certain national entities from signing contracts with companies that Texas auditor-general determines boycotting fossil fuel companies - the public pension ESG rules for individual states have become an absolute hot mess for Smörgåsbord.

While $550 million in U.S. public pension funds may sound moderate, while $77.8TN of total assets managed by North American Investment Management, their overflow expenses are enough to make any investment management CEO reconsider its priorities.

Since the Cultural War entered asset management, American managers have left climate initiatives like the CA 100+ in the struggle, and global asset management companies find themselves distorting their ridicule of ESG stance as they try to meet the different needs of European and American markets.

England and Wales have smaller LGP assets than their U.S. counterparts. But so are investment managers in the UK. LGPS funds jointly paid £1.8 billion in investment management fees in the year ended March 2024.

In the year to 2023, the total revenue of the UK net investment management industry totaled £22.6 billion, which is not a small change.

The UK's success in May's local government elections may lead to changes in investment mandates for UK asset managers and mergers. The long-term impact depends on the shape of the upcoming pension bill. However, it has the potential to have a real indifference effect in the net zero approach of the UK asset management industry.

This will be a big deal.