In a rare interview, Jayne Atkinson, chief investment officer of the £100 billion ($132 billion) UK pool LGPS Central, reveals the plan to scale up its offering after almost doubling its assets under management, including expanding alternatives to new allocations in hedge funds, diversified growth funds and insurance-linked securities.

With the sweep of a pen, LGPS Central, one of the United Kingdom’s Local Government Pension Scheme pools, has become a £100 billion ($132 billion) asset manager.

Following the government’s pursuit of economies of scale in public sector pensions, it axed two pools, ACCESS and Brunel Pension Partnership, and forced their underlying pensions funds to choose other pools.

LGPS Central has proved a popular choice, attracting six new client funds to bring its number of partner funds to 14 and nearly double its assets under management.

It requires “thinking and acting like a £100 billion asset manager” with more service offerings and a boosted exposure to asset classes and expertise CIO Jayne Atkinson, who joined LGPS Central six months ago, tells Top100funds.com.

“I wanted to join an LGPS pool that’s on the way up,” she says.

Under pressure to pool

Government policy has also put a renewed emphasis on pooling whereby partner funds transfer assets to LGPS Central. Policy makers want all LGPS assets to be pooled by March 2026, although that mandate does allow “limited flexibility” for pension funds moving to new pools.

LGPS Central’s pooled assets have grown from £19 billion in 2022 to around £50 billion today, but around £18 billion remains managed by partner funds through their existing arrangements. These include both active and passive strategies with external managers, across public and private markets.

“We have already started the transfer of these legacy assets. We are also in advanced discussions with new partner funds to understand their current asset strategies and work has started to formulate plans to transfer these assets across too,” says Atkinson.

As the pace quickens, she says her key focus is on developing stakeholder relationships, meeting new partner funds and attending the different pension committee meetings that range in size and sophistication with different needs and levels of diversification. Positively, she’s encouraged by the sense of collaboration between the funds, and how existing partner funds got behind LGPS Central’s bid to inherit new ones.

“We have been touched by how existing partner funds worked with us to inherit new ones in a truly collaborative exercise.”

In recent months she has made internal decision-making processes more efficient, including streamlining the manager line up in the pooled fund offerings. She is also building up the internal investment team to accommodate new partner funds, focused on recruiting mainstream asset managers from the external market place.

“We’ve already attracted some great hires,” she says. “It’s wonderful to see experienced household names come through the door.”

willingly taking compulsory advice

Policy makers have also ruled that  local authority pension funds take investment strategy advice from their respective investment pools. LGPS Central already provides investment advice to some of the partner funds, but in line with government policy has boosted its advisory offering in time to provide comprehensive investment strategy across all nine asset buckets, and asset liability modelling, from next spring.

“From next April, it will be compulsory for partner funds to use our advisory offering, but we want them to willingly come to us for advice and so we are working together with them on what that offering could like in the future,” she says, explaining that the individual administrative authorities will continue to decide each fund’s overall asset allocation, the major driver of overall returns.

Private markets push

LGPS Central’s existing  private markets offering is spread across OECD countries with around a quarter weighted to UK assets. Allocations span private equity, private credit, infrastructure and property, and each bucket has several closed and open-ended funds with different risk-return profiles and strategies.

This will expand to new allocations to hedge funds, diversified growth funds and insurance linked securities as well as hedging assets by April next year.

“Alternatives are one of the government’s nine asset class buckets, and we want to make sure we are ready to accommodate that next year,” she says, adding that these allocations won’t necessarily be run in-house. “We expect to in-house more investments where it is deemed cost effective, but we may also outsource if it’s not cost effective to keep the allocation in house. It’s a two-way street.”

LGPS Central is also building a new, three-person internal investment team focused on local investment in a strategy that aligns with government policy to invest more at home. Atkinson says she doesn’t want it labelled impact investment.

“The reason is, we are conscious of our members underlying need for a financial return and we are very keen to supply that financial return. These are not charitable investments, and we expect a risk adjusted return going forward.”

Norway’s massive sovereign investor, Norges Bank Investment Management, has surpassed Japan’s pension whale Government Pension Investment Fund to become the world’s largest asset owner for the first time, according to a new report by the Thinking Ahead Institute.  

NBIM, which was established to manage revenue generated from Norway’s oil reserve in 1998, has assets of KR20,440 billion ($2 trillion). At the time of the report, which measures assets at the end of 2024, it reported assets of $1.7 trillion, leapfrogging GPIF with $1.6 trillion. 

Chinese sovereign wealth funds took out third and fourth place, with SAFE Investment Company and China Investment Corporation, respectively holding assets of $1.4 trillion and $1.3 trillion according to the report. 

The fifth and final fund with assets above the trillion-dollar mark is the United Arab Emirates’ sovereign investor, Abu Dhabi Investment Authority ($1.1 trillion), according to the Thinking Ahead Institute. The report extracts AUM information and estimates from annual reports, regulators, third-party consultants and direct communications with organisations.  

A unique attribute for a fund the size of Norges Bank is that it has also been named the world’s most transparent fund by the Global Pension Transparency Benchmark, marking a rare combination of size and openness. 

On a country level, the US remains the biggest institutional market with 28 per cent of the assets from the top 100 asset owners, followed by China with an 11 per cent share and the United Arab Emirates with 7 per cent.  

Director at the Thinking Ahead Institute, Jessica Gao, noted that there are five wealth “clusters” forming in the US, Canada, Europe, the Middle East and Australia.  

“These pools of asset owners… collectively manage around $13 trillion and are shaping the direction of institutional investing, setting global investment trends, governance practices, and sustainability standards,” Gao said in a media statement.  

A well-known group among them is Canada’s Maple 8, which have been trailblazers in the internalisation of investment management and allocation to private markets, enabled by their rigorous fund governance.  

But the biggest cluster identified by the report is the ‘Euro 9’, which consists of NBIM, the Netherlands’ APG, PGGM, and MN Services N.V., France’s CDC, Sweden’s AP7, Germany’s Bayerische Versorgungskammer, Denmark’s ATP and the UK’s Universities Superannuation Scheme.  

In a further extension of the acronym, the US boasts what the Thinking Ahead Institute is calling the ‘Public 7’, which is made up of seven state and federal-level pension funds, including the $954 billion Federal Retirement Thrift.  

But the ‘Gulf 5’ in the Middle East and the ‘Super 6’ in Australia were deemed “less mature” clusters, even though the former collectively manages close to $3.9 trillion in assets. The Australian pension is a relatively young system – only 33 years old – but has huge growth potential because it is a compulsory system. 

The report determined these clusters by exercising an AUM limit and while these funds operate in their own regional context, the report identified commonalities, including a total portfolio thinking, a focus on resilience and a willingness for investor partnerships. 

As these funds grow, they need to address talent, culture, governance, and leadership as separate factors but also issues at the intersection of them: joined-upness in teams, work flexibility and networks, for example, the report said.  

“The funds have expressed concern that often events progress faster than their organisations can react. They are aware that kneejerk responses that are not fully-formed will not advance their cause,” the report said.  

“The funds’ CEOs and CIOs are impressive in their inner-outer thinking here – cultivating infacing-savviness – such as authenticity, self-awareness, critical thinking, visionary insight, and emotional intelligence. And outfacing agility – acting as ambassadors, authoritative voices, collaborators, diplomats, and experts.” 

Another trend the report identified among asset owners is the increasingly sophisticated use of technologies such as artificial intelligence, but highlighted that most allocators’ use-cases orient towards oversight, decision-support, and governance.  

It says this is a reflection of smaller internal teams in asset owner organisations and their reliance on asset managers in day-to-day investment implementation. 

“AI has a particularly attractive use case for asset owners in integrating data by blending existing knowledge and beliefs with various fresh data sources and context to reach new levels of decision-useful intelligence,” the report said. 

“[But] given the reliance asset owners place on asset managers for technology and data infrastructure, it is increasingly important that the asset managers stay ahead of the curve in adopting these tools.” 

The Swedish government’s plans to streamline the country’s pension system and merge private equity-focused buffer fund SEK 77.1 billion ($8 billion) AP6 with its larger, diversified sibling SEK 458 billion ($48 billion) AP2, has hit a bump in the road.

In the latest to-ing and fro-ing, AP2 has defended the government’s recent proposal to sell off the majority of AP6’s private equity portfolio but the strategy has – predictably – drawn fierce criticism from AP6, warning that it could knock billions off returns over time.

The policy document proposes that around SEK 47.5 billion ($4.9 billion) of AP6’s private equity funds and co-investment assets go into a transition portfolio that will be sold off gradually over time and re-invested in low-risk investments. It means only around 40 per cent of its portfolio will be combined into AP2’s long-term private equity allocation.

In a particular point of contention, the report suggests AP6’s SEK 24.3 billion ($2.5 billion) allocation to 85 co-investments with 25 managers also goes into the transition portfolio – a strategy AP6 chief executive Katarina Staaf has predicted could contribute to losses of as much as SEK 70 billion ($7 billion) in returns over the next decade.

“Placing more than half of AP6’s assets in the transition portfolio means much of the expertise on private equity that AP6 has built up over almost three decades will no longer benefit the Swedish pension system. A recent successful example of our co-investment program was the medical technology company Asker Healthcare. AP6 sold its holdings in the company a couple of weeks ago at a profit of more than SEK 4 billion ($0.42 billion),” said Ulf Lind Lindqvist, head of communications at AP6.

But Eva Halvarsson, CEO of AP2, tells Top1000funds.com she doesn’t want to increase AP2’s allocation to private equity beyond 15 per cent, and co-investment is unlikely to increase returns. She argues AP6’s estimated losses don’t consider AP2’s mission to manage a diversified portfolio, or take into account the high-risk nature of the asset class.

“In our view, the analysis put forward by AP6 is based on several misinterpretations,” she reflects. “It does not consider the fundamental prerequisite that AP2 has an unchanged mission as a diversified pension fund, nor does it take risk into account. Private equity investments offer high expected returns but also entail higher risk compared to many other asset classes. AP2’s mission is to manage the Swedish people’s pension capital responsibly, with consideration for both return and risk.”

She adds that AP2 has only just conducted a comprehensive ALM analysis, which concluded that a strategic allocation of 15 per cent to private equity is appropriate.

“This is a high proportion compared to other pension funds globally and a higher allocation would improve expected returns slightly but would also significantly increase risk, thereby reducing the risk-adjusted return.”

Halvarsson also questions the value of co-investments.

“Co-investments demand substantial resources and contribute to heightened portfolio risk. For perspective, AP2 has achieved comparable returns in private equity, without co-investments.”

She says AP2 will manage the transition portfolio with the same “diligence, professionalism and care as its existing private equity portfolio” and the focus will be on “creating value and generating liquidity over time, without accelerating divestments”. She reflects on the “valuable work” AP6 has done building the portfolio, but also stresses AP2’s long track record and skill in the asset class.

“AP2 has more than 20 years of experience in private equity investments.”

Still, tempers are running high.

The report rebuked AP6 for not cooperating with the merger process, citing the fund’s “unwillingness to cooperate on issues that are central to the inquiry”, causing a “delay in the inquiry’s work [that] has also affected the opportunities and conditions for AP2 as a recipient organisation.”

And Halvarsson won’t give any hard assurance that AP6 staff will be incorporated into AP2.

“Given the increased size of funds managed, AP2 is currently hiring for a number of different positions, which are open for anyone to apply. It is too early to say how many will come from AP6.”

Around 25 employees across more than 10 different functions are currently involved in managing AP2’s private equity portfolio.

Merger mania continues to grip Iceland’s pension sector as the country’s pension funds seek lower costs, higher returns, operational efficiencies, and the scale to better negotiate with asset managers.

The ISK 190 billion ($1.5 billion) Lífsverk Pension Fund and ISK 477 billion ($3.8 billion) Almenni Pension Fund are the latest duo to sign a merger agreement, which will create a new operational fund by January 2026.

At the end of this year, ISK 562 billion ($4.4 billion) Frjálsi Pension Fund and dental pension fund ISK 11 billion ($87 million) LTFÍ Pension Fund will also merge. Elsewhere, ISK 557 billion ($4.4 billion) Brú Pension Fund has taken over Akureyri Employees’ Pension Fund (LSA), following its earlier merger with the Reykjavik City Employees’ Fund.

The sector’s steady consolidation means the country has 21 pension funds today compared to 96 in 1980.

But consolidation doesn’t solve growing concerns recently flagged by the OECD and Iceland’s Central Bank about the size of the country’s pension funds relative to the economy. Iceland’s pension funds’ combined assets are now larger than those of the country’s banking system and insurance sector combined, and more than sufficient to buy all listed equities, bonds and bills in the country.

Pension fund assets reached almost 200 per cent of GDP by the end of 2022, up from around 150 per cent in 2018. The OECD states that pension funds are a major source of household mortgage lending; they are the largest investors in the domestic equity market and are among the largest owners of two of Iceland’s three systemically important banks.

Moreover, Iceland’s pension funds typically target a real reference rate of at least 3.5 per cent on their assets, typically above economic growth. The OECD flags that in a low-yield environment, pressure for returns could push pension funds into riskier asset classes and warns that authorities should closely monitor pension funds’ risk-taking, including through stress tests.

Central Bank urges pension fund reform

In 2022, pension fund reform allowed funds to gradually increase their holdings of foreign assets to 65 per cent, reducing exposure to Iceland’s small and volatile economy. But Iceland’s Central Bank is now urging for more reform of the Pension Fund Act, arguing that legislation governing the sector has fallen behind reforms in other parts of the financial system.

The Central Bank noted that while consolidation has brought economies of scale, it also raises challenges for how pension funds are managed and the extent to which they should be able to exercise influence as shareholders in Icelandic companies. It urged for more stringent requirements for board composition, risk-management frameworks, internal audit, compliance functions, and outsourcing oversight to reflect the systemic role of pension funds.

“Increased concentration undeniably brings a certain economy of scale, but at the same time it brings challenges involving, for instance, how pension fund management should be conducted and how assertive the funds should be in their role as company shareholders,” writes the bank. “In terms of total assets, Iceland’s pension funds are larger than the Icelandic banking system and insurance companies combined.”

Iceland’s three largest funds manage around half of the country’s total pension assets and the 15 largest manage 97 per cent.

The bank forecasts more pension fund investment within Iceland and abroad. It warned that foreign investment can entail challenges to financial stability, but pension funds should consider the potential impact on the balance of payments when investing abroad, so that they neither create nor exacerbate exchange rate volatility.

“Furthermore, the Bank considers it important to pass more detailed legislation on pension funds’ internal monitoring systems – including governance, key functions, risk management, and outsourcing – which should be harmonised with other financial market legislation.”

In the Bank’s assessment, the requirements made of pension funds’ key functions should be more stringent than they are currently, and special legislation on personal pension savings custodians should be passed. Furthermore, when the Pension Fund Act is reviewed, consideration should be given to the findings of impartial appraisers such as the International Monetary Fund,” states the Central Bank.

CalPERS’ Peter Cashion tells Top1000funds.com how the pension fund’s strategy to allocate to climate mitigation, transition and adaptation strategies is allowing it to access an untapped corner of the US market where many investors have retreated because of the policy environment.

The US policy backdrop has led many investors to cut back on their climate investments and internal team specialists. But CalPERS, the country’s largest public pension fund, has built its responsible investment team to 18 and is confident it can generate outperformance from investing in climate solutions and tapping into pockets of the market that others have missed.

“We told the board two years ago that we are doing this to generate outperformance,” says Peter Cashion, CalPERS’ managing investment director for sustainable investments charged with overseeing a Climate Action Plan which pledges to allocate $100 billion to climate solutions by 2030.

CalPERS currently has $60 billion invested across climate mitigation, adaption and transition sleeves in a strategy that Cashion says is also complimentary to the fund’s new Total Portfolio Approach, just endorsed by the board. Climate solution opportunities sit across the entire portfolio from venture to infrastructure and fixed income, where CalPERS has a sizeable allocation to green bonds, he says.

That exposure includes a $5 billion allocation to a customised public equity Climate Transition Index that tilts towards companies that have a transition plan and reduces exposure to those that don’t. Companies’ weighting in the index is determined by the amount of green revenue they generate based on data from MSCI, FTSE, and others. It means high emitters are included in the index because these companies will also have renewable energy assets or use carbon capture technology, for example.

“We do detailed diligence to try to validate that number and if it’s 1,2 or 3 per cent that comes from one of these green activities, we want to give them credit for that.”

Although returns from the CTI over the last nine months have been flat (with CalPERS index) Cashion believes this is too short a time period to extract a negative or positive view of an allocation that is notably more resilient.

In a sign of things to come, and proof that investing in sustainability does generate outperformance, he points to the fact that over the nine months of this year the S&P Climate Transition Index is up 50 per cent compared to the MSCI All World Index, up about 20 per cent.

What is most striking is that this has happened despite the negative policy backdrop in the US, he adds.

Companies that integrate sustainability create value and most companies are continuing to increase their investments in sustainability. US corporates are quieter about their strategy in the press; their public statements on the issue are muted and they have left the various net zero alliances.

But he believes most companies “are essentially doing the same thing” as they were before the Trump administration’s policy roll back that includes repealing regulations from the Environmental Protection Agency and the blockage of funds under the Inflation Reduction Act of 2022.

“It is striking because we’ve had all these negative developments from a policy perspective in the US. But underneath, there are actually a lot of positive things happening, and even in the US there is a huge amount of demand and investment happening,” he says, citing demand for renewables because of the increased need for electrification driven by AI, as well as growth in sectors like nuclear, grid improvements and carbon capture although offshore wind and EVs are struggling.

Outperformance in private markets

In private markets, CalPERS has made investment commitments in 13 climate-focused funds that include stakes in companies developing energy optimisation software, drought resistant crops and battery storage.

Cashion says the team focuses on identifying high conviction managers with leading strategies, and has developed a pacing plan for each asset class. But he says it’s too early to see outperformance in private markets because fund investment is a multi-year process.

However, he is confident that returns will be increasingly propelled by the growing synergy between climate solutions and AI. For example, CalPERS has invested in a company using AI and mobile technology to prevent wildfires before they spread. AI is also driving efficiencies and helping reduce emissions in the mining sector.

“Mining companies are increasing efficiency by using AI to find deposits in a way that also saves on emissions.”

CalPERS’ stake in the UK’s fast growing power company Octopus Energy alongside Australian pension fund Aware Super is another example. The private company’s Kraken AI software, used for customer billing and matching electricity demand to the intermittent output from wind turbines and solar farms, is licensed to other energy providers.

“Identifying companies using AI to increase energy or resource efficiency ahead of other investors is an important theme. Wouldn’t it be cool to be in those companies before they IPO?” he concludes.

The skirmish between the New York City Comptroller and BlackRock over climate alignment of the city’s public pension funds – a fight worth a $42 billion mandate to BlackRock – highlights the complexity and impracticality of aligning climate expectations, reporting requirements and business imperatives.

BlackRock, the world’s biggest asset manager, has hit back at calls from New York City Comptroller Brad Lander that three of the city’s largest pension funds drop the asset manager.

Lander, who ends his term as NYC chief financial officer and fiduciary of the city’s $300 billion pension fund portfolio at year-end, called on the Teachers’ Retirement System of the City of New York (TRS), New York City Employees’ Retirement System (NYCERS), and NYC Board of Education Retirement System (BERS), to axe a $42 billion passive mandate with BlackRock because it doesn’t meet their climate expectations.

It is time, wrote Lander in a letter that expressed both the honour and responsibility of his tenure, for these pension funds to evaluate other managers more aligned on climate and with alternative net zero and decarbonisation strategies.

BlackRock has hit back, accusing Lander of playing politics with public pension funds.

“You accused BlackRock of abdicating its financial duty and putting New York City’s pensions at risk,” wrote Armando Senra, managing director and head of the Americas for BlackRock’s institutional business in a public statement. “These statements are another instance of the politicisation of public pension funds, which undermines the retirement security of hardworking New Yorkers.”

He continued: “Any change to one of the five pension plan portfolios would be subject to a review process involving the plan’s board, the NYC BAM investment team, and other relevant stakeholders. Should they take up your recommendation, we look forward to demonstrating the breadth and depth of our capabilities and the tremendous value we deliver to NYC BAM and 750,000 dedicated public servants.”

Comptroller Lander also called for the New York City funds to drop asset manager Fidelity (which manages $384 million for TRS) and PanAgora (which manages $358 million for both TRS and NYCERS) for the same lack of ambition on climate.

A mandate appraisal that fell short

Lander’s call to axe the three managers follows a reappraisal of its mandates across climate alignment. The evaluation process, begun in April this year, revealed 46 of the system’s 49 active and passive public markets managers submitted decarbonisation plans that met NYC pension funds’ climate expectations.

But Lander said BlackRock’s interpretation of new guidance from the US Securities and Exchange Commission under the Trump administration is conservative and restrictive, unlike other asset managers. For example, BlackRock’s policy contrasts to State Street, the pension funds’ second largest asset manager and which oversees a total of $8 billion in US equity index assets.

“State Street’s approach to climate stewardship demonstrates that it is possible for a large global equity index manager to meet the systems’ climate expectations in ways that BlackRock has not demonstrated it is willing to do,” wrote Lander.

BlackRock’s huge size means it owns more than 5 per cent of approximately 2,800 US-listed companies, far more than other investors. Last February the SEC issued new guidance on investor activism, imposing stricter regulatory requirements on fund managers wanting to influence corporate behaviour. The SEC requires firms with 5 per cent ownership to file form 13D with the SEC if they communicate with those companies on proxy voting matters.

BlackRock argues that this position is not simply a matter of filing a longer, more complicated form, but could materially affect its ability to execute index investing for its clients. Moreover, filing a 13D requires a 10-day pause in trading, which would prevent BlackRock from buying or selling the security in order to maintain the index exposure to it, potentially leading to tracking error during that period.

Lander also criticised BlackRock’s climate reporting because it is set at a “very high level” that does not provide specifics about engagement outcomes, with the exception of limited anecdotal “spotlight” columns in their annual stewardship report.

Blackrock’s history of climate integration goes back to 2021 when chief executive Larry Fink announced in his annual letter the company would put climate change centre-stage across its $7 trillion portfolio (Behind Blackrock’s climate pledge). Since then the manager has been put through its paces including in Texas where it was blacklisted by the state legislature and public funds were banned from investing with the manager due to anti-Texas policies, and then three years later it was re-instated. (Texas politicians reinstate BlackRock as manager’s ties to the state grow)

fossil fuel infrastructure on the chopping block

Lander also expressed his ongoing support for the city’s pension funds to cease future investments in midstream and downstream fossil fuel infrastructure in private markets like pipelines and LNG terminals – the strategy would have no impact on existing investments.

“Most midstream and downstream assets are capital-intensive and long-term in nature, and the long-term outlook for fossil fuels is negative as the economy transitions to low-carbon energy. There is no guarantee that future midstream/downstream investments will continue to generate excess returns. Taking this critical step will ensure that the systems’ private markets investments are not financing fossil fuel infrastructure that will make it harder for the planet to limit global warming.”

He also called for ongoing direct engagement with high emitting portfolio companies, independently from the pension funds’ asset managers, particularly targeting utilities which collectively represent about 20-30 per cent of the systems’ financed emissions.

Lander’s climate legacy

Lander has overseen ongoing progress on climate investment at the Bureau of Asset Management, home to the pension funds’ investment teams since he took the helm in 2021. The pension funds divested from thermal coal in 2016 and voted in 2021 to divest from fossil fuel reserves in public equities and corporate bonds portfolios, as well as commit to net zero emissions by 2040.

He has also ratcheted up pressure on asset managers, setting out standards by which public markets asset managers’ net zero alignment plans should be evaluated, and putting those that don’t measure up on watch.

Managers have been asked to engage portfolio companies on decarbonisation, incorporate material climate change-related risks and opportunities in investment decision-making and ensure a robust and systematic stewardship strategy.

Milestones include collectively reducing emissions by 37 per cent since 2019 and engagement with companies, particularly in the utility and financial sectors.

“These strong actions on climate have taken place while the systems have achieved a strong 10.5 per cent combined net investment returns for FY2025, which exceeded their actuarial target of 7 per cent,” wrote Lander.