By Chris O'Bryen, Investment Associate Consultant, Hymans Robertson
Pooling hasn't outsourced fiduciary duty
While pools are taking on greater implementation responsibilities, while managing all of a fund’s assets, partner funds maintain the fiduciary duty and remain accountable for setting investment objectives, determining strategy, overseeing the pool and monitoring delivery.
One way to demonstrate these duties is by reporting against the stewardship code. The responsibilities are consistent with the Financial Reporting Council's broad definition of stewardship. These extend beyond voting and engagement to include the oversight of capital, holding service providers to account and acting in beneficiaries' long-term interests.
A pool's report isn't a partner fund’s report
Pools will act and report as investment managers and, by providing advice, service providers. Partner funds, meanwhile, will report as asset owners. These perspectives reflect different responsibilities in the investment chain and are complementary rather than duplicative.
A pool may report on engagement activity, manager selection or solution design. But a partner fund should report on how it influenced those activities, the policies behind them, challenged decisions through governance structures and working groups, and ensured its own objectives were delivered.
Ultimately, the responsibilities that remain with the fund won’t appear in pools’ reporting. This should, therefore, be the focus of partner funds’ disclosure.
Responsible investment (RI) and local investing
From an RI perspective, partner funds retain responsibility for setting their policies, priorities and stewardship objectives, even though their implementation increasingly sits with the pool. Funds are expected to oversee and challenge the pool, ensure their RI beliefs are reflected in pooled arrangements, monitor delivery and outcomes and work with other partner funds where possible. In practice, this means LGPS funds remain accountable for their fiduciary duties and stewardship approach, while pools take on the operational role of delivery through manager selection, voting, engagement and portfolio management.
Local investing is another area where partner funds have an important stewardship role. While pools may source and implement opportunities, funds will set their own local investment objectives, establish solutions aligned with strategic authorities and local priorities and ensure investments continue to support members’ interests.
The updated Code aims for more flexibility and shorter reporting
The UK Stewardship Code 2026 recognises that stewardship looks different across the investment chain. Asset owners, asset managers and service providers all have distinct roles, and the updated framework is designed to accommodate that reality.
There are no LGPS-specific reporting requirements within the Code, which does not seek to prescribe what ‘good’ looks like. Instead, signatories are encouraged to tell their own stewardship story. This provides a great opportunity for LGPS partner funds, who play an important role as an investor (asset owner) and have a unique responsibility as shareholder in an investment management company. The Code provides a useful framework for explaining how funds can meet this opportunity on their members’ behalf.
The updated Code also seeks to reduce reporting burdens, with a Policy and Context Disclosure required only periodically and a shorter annual Activities and Outcomes Report in intervening years. Signatories reporting under the new framework will, therefore, have completed much of the initial work and should benefit from a more streamlined process.
An opportunity, not a compliance exercise
Given the changes in regulations for the LGPS, Stewardship Code reporting is a way for a partner fund to set out its responsibilities and outcomes such as its investment objectives, effective pool oversight and local investment.
It’s also an opportunity to communicate with members and demonstrate how responsibilities are being exercised on their behalf. Funds should be confident in telling that story through Stewardship Code reporting.
|
