SCALING UP INSTITUTIONAL
INVESTMENT FOR PLACE-BASED IMPACT
White Paper
MAY
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
EXECUTIVE SUMMARY
4
INTRODUCTION
8
1.1 Place-based approach to impact investing 9
1.2 Why the Local Government Pension Scheme? 9
1.3 This report 10
A PLACEBASED FRAMEWORK FOR INVESTORS
12
2.1 A conceptual model: the architecture of PBII 12
2.2 The stakeholder ecosystem 15
2.3 The five traits of place-based impact investing 17
2.4 The financial case for investing in the ‘five pillars’ 18
A BASELINE ANALYSIS OF INVESTMENT ACTIVITY BY LGPS FUNDS
22
3.1 The size distribution of LGPS funds 22
3.2 Intentionality and action in LGPS funds 24
3.3 Summary of findings 29
STAKEHOLDER PERSPECTIVES AND CURRENT PRACTICE
30
4.1 Barriers and solutions to scaling up PBII 30
4.2 Investment strategies 34
4.3 Investment fund models 37
4.4 Capacity, skills and competence – build, buy or borrow 42
4.5 The role of pension pools 46
IMPACT MEASUREMENT, MANAGEMENT AND REPORTING FRAMEWORK
48
5.1 Why impact measurement and management matters 48
5.2 Stakeholder perspectives on impact measurement 49
5.3 Approach to developing a PBII impact reporting framework 50
5.4 The PBII impact reporting framework 51
5.5 Next steps 57
MOVING FORWARDS
58
6.1 A national approach to PBII and levelling up 58
6.2 Recommended actions 60
6.3 Final reflection 65
ANNEX
66
Annex 1: List of individuals consulted 66
Annex 2: List of identified funds with LGPS investment 68
Annex 3: Example theories of change 74
CONTENTS
ABOUT THE PROJECT
The Good Economy, Impact Investing Institute and Pensions for Purpose have joined forces to
produce a white paper on place-based impact investing (PBII) that can mobilise institutional capital
to help build back better and level up the UK. Based on extensive consultations with market actors
and stakeholders, this white paper offers a clear set of directions, models and practical guidance
for investors to engage in PBII and report their impact across sectors and geographies. The Local
Government Pension Scheme (LGPS), the empirical focus of this project, could itself become a
pioneer of PBII in the UK, showing the way forward for the multi-trillion pound pensions industry.
This research project has been supported by the Department for Digital, Culture, Media & Sport,
the City of London Corporation and Big Society Capital. Our approach to the project has been
collaborative and consultative throughout, with LGPS funds, local authorities, fund managers and
other stakeholders contributing advice, guidance and practical support throughout the project work.
ABOUT THE PARTNERS
THE GOOD ECONOMY
The Good Economy (TGE) is a leading social advisory firm dedicated to enhancing the contribution
of finance and business to inclusive and sustainable development. Formed in 2015, TGE has rapidly
established itself as a trusted advisor working with public, private and social sector clients. TGE
provides impact strategy, measurement and management services and also runs collaborative
projects bringing together market participants to build shared thinking and new approaches to
mobilising capital for positive impact. TGE currently provides impact advisory services for over
£3.4 billion assets under administration.
IMPACT INVESTING INSTITUTE
The Impact Investing Institute is an independent, non-profit organisation which aims to accelerate
the growth and improve the effectiveness of the impact investing market. It does this by raising
awareness of, addressing barriers to, and increasing confidence in investing with impact.
PENSIONS FOR PURPOSE
Pensions for Purpose exists as a bridge between asset managers, pension funds and their
professional advisors, to encourage the flow of capital towards impact investment. Its aim is to
empower pension funds to seek positive impact opportunities and mitigate negative impact risks.
It does this by sharing thought leadership and running events and workshops on ESG, sustainable
and impact investment.
ACKNOWLEDGEMENTS
We would like to thank the UK Department of Digital, Culture, Media & Sport, City of London
Corporation and Big Society Capital for their funding and support for this research. We would also
like to thank all the individuals and organisations who have supported this project by participating
in interviews, roundtables and providing case studies and data. A special thanks to Edward Jones
and Nicole Pihan for sharing the LGPS holdings data that they accessed through Freedom
of Information requests.
TGE CO-AUTHORS AND PROJECT TEAM
Sarah Forster, CEO and Co-Founder
Mark Hepworth, Co-Founder and Director of Research and Policy
Paul Stanworth, Principal Associate, TGE and CIO of 777 Asset Management
Sam Waples, Head of Data Analytics
Andy Smith, Head of Impact Services, Housing and Real Estate
Toby Black, Research Assistant
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
We define place-based impact investment as:
Investments made with the intention to yield
appropriate risk-adjusted financial returns as well
as positive local impact, with a focus on addressing
the needs of specific places to enhance local
economic resilience, prosperity and sustainable
development.
We present an original conceptual model of PBII that brings
together places and investors around five ‘pillars’, underpinned
by a solid social and financial rationale for investing (see
Section 2). The five pillars are dual structures. On the one hand,
they represent policy objectives and priority areas in local and
regional development strategies. On the other hand, the pillars
are real economy sectors and investment opportunity areas that
fall within institutional investment strategies and asset classes.
Central to PBII is creating an alignment of interest and action
among all stakeholders in shared impact creation for the benefit
of local people and places. Stakeholder consultation and
engagement is indeed fundamental to PBII. This type of investing
is about ‘boots on the ground rather than eyes on screens’.
The white paper also defines five traits that define
and distinguish PBII as an investment approach:
1 Impact intentionality
2 Definition of place
3 Stakeholder engagement
4 Impact measurement, management and reporting
5 Collaboration.
THE FINANCIAL CASE FOR PBII
For institutional investment to flow to PBII, it needs to meet
the commercial investment requirements of LGPS funds and
other institutional investors. We carried out original analysis of
market data which demonstrates that investments within the
sectors that are key to PBII - affordable housing, SME finance,
clean energy, infrastructure and regeneration – can deliver
risk-adjusted financial returns in line with institutional investor
requirements. Specifically:
Investments in these key sectors provide stable, high,
long-term returns and low volatility versus other mainstream
asset classes.
Investments in most of these sectors are generally in real
assets, such as housing and infrastructure, so can also
provide income streams.
These assets are generally illiquid which often command
higher returns, hence, are attractive from a portfolio
diversification and financial return perspective.
The universe of assets is, however, comparatively small and
often in the private markets, suggesting a need for manager
selection and a deeper understanding of the risks by interested
institutional investors.
THE OPPORTUNITY FOR LGPS FUNDS
Currently the scale of PBII is very limited. Our baseline analysis
of investment activity by LGPS funds in sectors that are key for
PBII found that:
Few pension funds demonstrate intentionality to invest
with a local place-based lens. We were only able to identify
six LGPS funds out of a representative sample of 50 that
have a stated intention to make place-based investments:
Cambridgeshire, Clwyd, Greater Manchester, Strathclyde,
Tyne and Wear and West Midlands. Of these, only Greater
Manchester has an approved allocation to invest up to 5%
of its capital locally.
There is a very low level of investing into key PBII sectors.
Only 2.4% of the total value of LGPS funds holdings are in
these key sectors, of which only 1% of total assets (£3.2 billion)
is clearly identifiable as directly invested in these sectors
within the UK. Infrastructure dominates in terms of the scale
of investment. SME finance provides the most opportunities
for direct local and regional investment through specialist
fund managers.
Key sector allocations are generally relatively small size,
averaging £10 million and busting the myth that pension
funds can only make large allocations in the £50 million
to £100 million range.
A PLACE-BASED APPROACH TO IMPACT INVESTING
The UK is a country of entrenched place-based inequalities which have persisted for
generations and are more extreme in the UK than most OECD countries. The Covid-19
pandemic and Brexit have combined to move these place-based inequalities to centre
stage in public debate – alongside a search for effective and sustainable ways of tackling
them. The need for more public investment is undeniable and the political will appears to
be in place. There is now a golden opportunity for responsible, patient private capital to
step in, match public investment and deliver positive environmental and social impact in
places and communities across the country.
Currently only a small fraction of UK pension money is invested
directly in the UK in ways that could drive more inclusive
and sustainable development, in sectors like affordable
housing, small and medium-enterprise (SME) finance, clean
energy, infrastructure and regeneration. This white paper
offers a place-based approach to scaling up institutional
capital, including pension fund investment, into opportunities
that enhance local economic resilience and contribute to
sustainable development, creating tangible benefits
for people, communities and businesses across the UK.
If we manage to accomplish this, the UK will be creating
bridges between London and the rest of the country, and
bridges between financial capital and the real economy.
Place-based approaches to tackling deep-seated social and
spatial inequalities are now the norm internationally and they
are relatively advanced in the UK. The current UK Government’s
levelling up policies are consistent with a place-based
approach. With the costs to the nation of levelling up expected
to exceed £1 trillion over the next 10 years, it is clear public
investment will need to be matched by private investment. This
is the rationale for our study, which explores how a place-based
approach, already favoured by public and social investors, can
be extended to institutional investors.
To establish an empirical basis for understanding place-based
investing, we chose to focus on the Local Government Pension
Scheme (LGPS). These pension funds are locally managed by
98 sub-regional administering authorities and have assets with
a combined market value of £326 billion as of March 2020 (see
footnote 6). The LGPS has a place-based administrative and
membership geography.
Environmental, social and governance (ESG) integration and
alignment with the Sustainable Development Goals (SDGs) are
becoming increasingly important to investment strategies, and
there is a legacy and current interest in local investing. If all
LGPS funds were to allocate 5% to local investing, this would
unlock £16 billion for local investing, more than matching
public investment in the £4.8bn Levelling Up Fund and
associated government initiatives.
The levelling up agenda goes hand-in-hand with the climate
change agenda where pension funds already have a strong
focus, including how to build net zero portfolios. Delivering
these two goals together would support a ‘just transition’
to a net zero economy that supports green job creation and
simultaneously delivers environmental, economic and social
benefits across the UK.
We should emphasise, however, that we see place-based
impact investment (PBII) as a new paradigm and lens for
investors more generally. We envision PBII as a confluence
of capital from commercial, social and public investors that
results in equitable distribution of investment across all
regions of the UK for the benefit of local places and people.
This confluence of capital flows, with institutional investors
playing a key role, must happen if we are to make the levelling
up aspiration a reality. As such, we hope this report acts as a
template for change, and will be read and acted upon by all
institutional investors and financial institutions.
The project has been led by The Good Economy working in
partnership with the Impact Investing Institute and Pensions
for Purpose. The research project has been supported by the
Department for Digital, Culture, Media & Sport, City of London
Corporation, and Big Society Capital.
EXECUTIVE SUMMARY
PBII Conceptual model
LGPS funds and other institutional investors
Inter-
linkages
Multiplier
effects
IMPACT INVESTING
Local priorities, needs and opportunities as defined by local authorities, strategic authorities and local stakeholders
SPECIFIC PLACE
HOUSING
SME FINANCE
CLEAN ENERGY
INFRASTRUCTURE
REGENERATION
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
Investment in these sectors is growing due to an
increasing number of funds managed by specialist fund
managers. From 2017 to 2020, the number of private market
funds investing in these sectors increased by 16% from 106
to 123 funds, and the number of public funds increased by
62% from 21 to 34 (see Annex 2 for a list of funds). The
largest growth is seen in investments in residential housing,
including social and affordable housing.
STAKEHOLDER PERSPECTIVES AND CURRENT PRACTICE
There are challenges to PBII but none of these are hard barriers.
The three main challenges are:
Traditional mindsets whereby institutional investors
allocate capital to the global capital markets without giving
full consideration to whether allocations closer to home
could deliver comparable returns and diversification while
benefiting the development needs of local communities.
Fears of conflicts of interest make LGPS managers wary
of being accused of succumbing to political pressures that
undermine their fiduciary responsibility.
Capacity constraints and having the time, expertise and
skills to source and carry out due diligence on PBII
opportunities are the most limiting factors to scaling up
these types of investments.
It appears that the universal requirement to scaling up PBII is an
increase in operational resource across the ecosystem to prepare,
identify and do due diligence on PBII investments, including
building expertise within local authority teams, LGPS investment
teams and consultants. In order to meet this capacity
challenge, we observed approaches we broadly classify as
‘building’ capabilities, ‘buying’ in the skills or ‘borrowing’
resources. Section 4.4 provides examples of how different LGPS
funds have used these strategies to make local investments.
Many UK fund managers expressed frustration that it is easier
to raise capital from foreign pension funds than it is from UK
pension funds. This is in part because these foreign pension
funds are larger with teams that are more experienced in private
market investing who proactively seek out UK opportunities.
In the UK, individual LGPS funds have made PBII-aligned
investments in three ways: direct investments, co-investment
strategies and via third-party managed funds. The vast majority
of capital is invested via third-party funds, hence, fund manager
selection and experience is critical to scaling up PBII. Pension
funds review their managers closely and are often guided by
advisors and consultants.
Many of the fund managers in this space are relatively small,
specialist firms. Those LGPS funds that have a commitment
to PBII have the appetite and resources to engage with and do
due diligence on smaller fund managers. However, the majority
of LGPS funds rely on consultant advice for strategic asset
allocation and fund manager selection and the smaller funds
do not get considered. This pattern tends to lead to bifurcation
in the market. Large fund management firms which are more
able to raise capital are successful but with more traditional
strategies. This contrasts with specialised niche firms which
often have a more impactful strategy or place-led approach
but find it challenging to raise capital.
Consultants perform a gatekeeper role. Hence, getting
consultant buy-in and support is key to scaling up institutional
investment in PBII.
Pension pools are building their capacity and skills in private
markets investing and could potentially also play an important
role in scaling up PBII. There are eight pension pools in England
and Wales which were established as a means for individual
LGPS funds to invest collectively so leveraging scale to
improve investment opportunities and reduce costs.
IMPACT REPORTING FRAMEWORK
Evidencing the achievement of place-based impact is
fundamental to PBII. TGE convened a working group of LGPS
funds, local authorities and fund managers to develop a
common approach to impact measurement, management and
reporting.
We used the PBII pillars to provide a set of common impact
objectives that are relevant from both a local government policy
and investment perspective. We also co-created a reporting
approach that provides a core metrics set to report back on PBII
activity. A key aim was to develop a right-sized and practical
approach to impact reporting that would enable LGPS funds to
communicate with their members in a clear and straightforward
manner about their place-based investment activity.
CALL TO ACTION
We have presented PBII as a new paradigm for institutional
investment using the LGPS to explore its implications for
thinking and doing things differently. We see this paradigm as
potentially having a much bigger reach: the aim should be for
PBII to become a main investment theme in the next decade for
the UK’s leading pension funds.
Successful adoption of PBII through projects that are appropriately
planned, designed and financed would help reduce place-
based inequalities. However, this also requires deploying
the PBII model within existing national strategies that aim to
tackle regional inequalities, such as the Devolution and Growth
Deals, the National Infrastructure Strategy, the Industrial
Strategy, the Climate Change Adaptation Strategy and the
levelling up programmes. PBII can also provide an umbrella
framework for local investment partnerships between
commercial impact investors, local and central government,
social investors (including foundations) and local anchor
institutions, such as housing associations and universities.
Levelling up is about creating this landscape of investment
activity with hundreds of PBII projects underway right across
the country, and with inequality within and between places
diminishing over the next decade. This is what success looks like.
We recommend five areas for action to scale up PBII. We want
to change the traditional investment paradigm and scale
up investment in PBII for the benefit of communities across
the UK. Hence, we need to raise awareness and strengthen
the identity of PBII as an investment approach that could
contribute to inclusive and sustainable development across
the UK, whilst achieving the risk-adjusted, long-term financial
returns required by institutional investors. This requires actions
that raise awareness, increase capacity and competency,
promote place-based impact reporting, connect investors and
PBII opportunities and scale up institutional grade investment
products. Section 6 provides details of these priority areas and
a call for action to all market actors to engage in the PBII agenda.
THE FIVE
CATEGORIES
OF ACTION
RAISE AWARENESS
SCALE UP
INSTITUTIONAL GRADE
PBII INVESTMENT FUNDS
AND PRODUCTS
5
1
2
3
4
INCREASE CAPACITY
AND COMPETENCY
PROMOTE ADOPTION
OF REPORTING ON
PLACEBASED IMPACT
CONNECT INVESTORS
AND PBII OPPORTUNITIES
FINAL REFLECTION
Behind all of the discussion in this white paper is the idea
that if we can get PBII right and launched across the country
– as a top national priority within the build back better and
levelling up agendas – then it is not unrealistic to expect the
UK to approach 2030 as a landscape where place-based
inequalities are becoming a thing of the past. Much of this
report is about ‘getting there’.
If we manage to accomplish this, the UK will be creating
bridges between London and the rest of the country, and
bridges between financial capital and the real economy.
Bridge-building calls for collaboration and a sharing of
money and method, with impact investors of all kinds
working closely with place-based stakeholders from
business, government and community to get things done.
There is a need for mutual learning and understanding, as
we have emphasised throughout this report.
Behind all of the discussion in this white paper is the idea that if we
can get PBII right and launched across the country – as a top national
priority within the build back better and levelling up agendas – then it
is not unrealistic to expect the UK to approach 2030 as a landscape
where place-based inequalities are becoming a thing of the past.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
1. Philip McCann, ‘Perceptions of regional inequality and the geography of discontent: insights from the UK’, Regional Studies, 2019.
2. ‘Unequal Britain: attitudes toward inequality in light of Covid’, Policy Institute at King’s College London and UK in a Changing Europe,
February 2021. A key finding of this survey research was that “inequalities between more and less deprived areas (61% of survey
respondents), along with disparities in income and wealth (60%) are seen as the most serious type of inequality in Britain.”
3. HM Treasury, Levelling Up Fund Prospectus, March 2021
4. Since its election in 2019, the Government has made a series of announcements and financial commitments to levelling up in a range
of funds, including the Levelling Up Fund, the UK Community Renewal Fund, the Community Ownership Fund and the Towns Fund.
5. The UK 2070 Commission, Go Big, Go Local: A New Deal for Levelling up the UK, October 2020
6. MHCLG, Local Government Pension Scheme Funds England and Wales: 2019-20 Statistical Release. For Scotland and Northern Ireland
individual pension fund annual reports (2019/2020).
The UK is a country of entrenched place-based inequalities which have persisted for
generations and are more extreme in the UK than most OECD countries (see Chart 1.1).
1
The Covid-19 pandemic and Brexit have combined to move these place-based inequalities
to centre stage in public debate – alongside a search for effective and sustainable ways
of tackling them.
2
Currently only a small fraction of UK pension money is invested directly
in the UK in ways that could drive more inclusive and sustainable development. This
study looks at how to scale up institutional capital, including pension fund investment,
into opportunities that enhance local economic resilience and sustainable development
and create tangible benefits for people, communities and businesses across the UK.
1 INTRODUCTION
Place-based approaches to tackling deep-seated social
and spatial inequalities are now the norm internationally
and they are relatively advanced in the UK.
3
The current
Government’s levelling up policies are consistent with a place-
based approach.
4
With the costs to the nation of levelling
up expected to exceed £1 trillion over the next 10 years, it is
clear public investment will need to be matched by private
investment.
5
This is the rationale for our study, which explores
how a place-based approach, already favoured by public and
social investors, can be extended to institutional investors.
The investor focus of this white paper is the Local Government
Pension Scheme. These pension funds are locally managed by
98 sub-regional Administering Authorities, having assets with
a combined market value of £326 billion as of March 2020.
6
The LGPS has a place-based administrative and membership
geography. Environmental, social and governance (ESG)
integration and alignment with the Sustainable Development
Goals (SDGs) are becoming increasingly important to
investment strategies, and there is a legacy and current
interest in local investing.
We should emphasise, however, that we see place-based
impact investment as a new paradigm or lens for investors
more generally. We envision a confluence of capital flows
from private markets, government programmes and social
investment into local economies and communities. The
levelling up agenda requires this confluence of capital flows,
with institutional investors playing a key role. As such, we
hope this report will be read and acted upon by all institutional
investors and financial institutions.
The project has been led by The Good Economy working in
partnership with the Impact Investing Institute and Pensions
for Purpose. It has been supported by the Department for
Digital, Culture, Media & Sport, City of London Corporation, and
Big Society Capital.
Source: The Good Economy.
Chart 1.1 Place-based inequality in the UK
Contains OS data © Crown copyright and database right (2021).
Recreated from IFS Green Budget 2020: Levelling up: where and how? The Institute for Fiscal Studies, October 2020.
Areas economically impacted by
Covid-19 and considered ‘left behind’
Top quintile Covid-19 and Left-Behind Indices
Top quintile Covid-19 Index
Top quintile Left-Behind Index
Not in top quintile for either measure
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
This report extends the scope of the LGPS sustainability agenda
from the ‘E’ in ESG to the ‘S’, and from the environmental SDGs
to a wider set of SDGs covering sustainable and inclusive
economic development and decent jobs. As such, PBII offers
a promising route for LGPS funds to achieve SDG benefits on
behalf of their surrounding local and regional communities.
Finally, LGPS funds have a legacy of local investing to build on.
If 5% of LGPS funds were allocated to local investment this
would unlock £16 billion for PBII, more than matching public
investment in levelling up.
Through the course of this research, we found examples of
LGPS funds, both individually and collectively, investing in
projects delivering a positive local impact – notably in the areas
of affordable housing, SME finance, clean energy, infrastructure
and regeneration. These are all areas where PBII could be
scaled up and profiled more strongly for LGPS members and
local community and economy stakeholders. This study
presents ways and means of accelerating this investment
activity and making it more visible and coherent from a local
sustainable development perspective.
1.3 THIS REPORT
Our approach to the study has been collaborative and
consultative throughout, with the research team setting out
to enable LGPS funds and stakeholders and our partners and
sponsors to contribute advice, guidance and practical support
to the project work.
The structure of the report is as follows:
Section 2 outlines a conceptual ‘five-pillar’ model of PBII,
the social and financial case for investment, a mapping of
the stakeholder ecosystem and five traits that define PBII
Section 3 provides a baseline assessment of PBII activity
by LGPS funds
Section 4 analyses stakeholder perspectives on the
challenges and opportunities for PBII, the investment
models used and possible routes to increase institutional
investment flows
Section 5 presents a proposed common approach to
impact measurement, management and reporting
Section 6 synthesises our conclusions and proposes five
action areas to scale up PBII.
7. Taylor, M., Buckley, E. and Hennessy, C. (2017). Historical review of place-based approaches, Lankelly Chase.
8. Centre for Cities, Levelling Up the UK’s Regional Economies, March 2021; Institute for Fiscal Studies, Levelling up: Where and How?, October 2020.
This study explores the potential role of impact investing
in tackling place-based inequalities, given its mission is to
generate positive social and environmental impacts while
providing investors with financial returns.
The PBII Project has set out to answer how impact investing
can, as a global market trend, be purposed to deliver positive
impact at the local level, measured by progress towards a
future of inclusive prosperity and sustainable development.
Similarly, the project asked what a place-based approach to
impact investing – or simply, ‘place-based impact investment’
(PBII) – would look like in practice, starting from the following
definition:
Place-based impact investments are made with
the intention to yield appropriate risk-adjusted
financial returns as well as positive local impact,
with a focus on addressing the needs of specific
places to enhance local economic resilience,
prosperity and sustainable development.
In the sphere of public policy, place-based approaches refer to
the sub-national – for example, regional, local, neighbourhood
– level of economic, social and community development and
service delivery. The UK public policy landscape has been
described as ‘a patchwork quilt’ of place-based initiatives,
mainly anchored by local authorities working together in
cross-sector and regional partnerships.
7
In the commercial sphere of institutional investment, ‘place’
is typically looked at through the lens of country-level
diversification within global portfolios. The PBII Project has
explored the prospect of sub-national portfolio diversification
by institutional investors – with ‘place’ referring to local
and regional economies and communities within the UK. In
other words, ‘place’ in PBII is where these public policy and
commercial spheres intersect.
PBII is a paradigm which positions ‘place’ at the sub-national
level – regions, cities, communities – and enables institutional
investors to engage in the same spatial context, making it
possible for collaboration and shared value creation. The
project has asked: what can place-based stakeholders and
impact investors learn from one another? One area for mutual
learning and knowledge-sharing lies in impact measurement,
management and reporting. This could provide a promising
route for developing targets and metrics for levelling up
policies, programmes and projects.
8
The thrust of this report is to scope out PBII as an opportunity
area where potential synergies between investors and
place-based stakeholders can be used to provide both long-
term positive financial returns and social, economic and
environmental impacts.
The LGPS is one of the largest pools of institutional capital
that also has connections with place-based communities in
all areas of the country. The decentralised geography of the
LGPS and its local investment decision-making powers suggest
it is worthwhile exploring how it could play an important and
distinctive role in PBII.
Further to this, if PBII were to lead to more prosperous local
economies and communities, local authority revenues would
be enhanced. Ideally, PBII would generate a virtuous circle of
good pension fund returns and strong local multiplier effects
that bring inclusive prosperity and sustainability in the long run.
Stronger local economies would also result in greater financial
stability for the local authority members of the pension funds.
This is, of course, an ideal scenario. In the first instance, LGPS
funds have responsibilities to their members as pension fund
managers. Political and financial barriers are also known to
influence the scope of LGPS decision making. Certainly, LGPS
funds do not see themselves as ‘impact investors’ seeking to
meet local development objectives. However, we do know that
the LGPS funds are moving decisively in the direction of ESG
integration and the SDGs, which is evident from their investment
strategies in public listed and private markets.
The levelling up agenda goes hand-in-hand with the climate
change agenda where pension funds already have a strong
focus, including how to build net zero portfolios. Delivering
these two goals together would support a just transition to
a net zero economy that supports green job creation and
simultaneously delivers environmental, economic and social
benefits across the UK.
1.1 PLACE-BASED APPROACH TO IMPACT INVESTING
1.2 WHY THE LOCAL GOVERNMENT PENSION SCHEME?
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
9. Local Government Association (LGA), Attracting investment for local infrastructure (Guidance), 2019.
10. Isabelle Roland, ‘Unlocking SME productivity’, LSE Centre for Economic Performance, 2020.
Looking at PBII through the lens of these asset classes is a
useful entry point for institutional investors, including LGPS
funds that must achieve commercial returns to meet their
pension fund obligations. Such investments have direct
linkages to the real economy and development processes
and activities that impact on people’s lives and the prosperity
of places, therefore bringing about place-based impacts, as
described below. Our interviews with LGPS funds confirmed
that approaching PBII opportunities that already exist in
sectors within the asset classes they are familiar with is a
helpful approach.
It makes sense to approach PBII through the
lens of asset classes that pension funds are
familiar with e.g. infrastructure, real estate.
– Academic Expert
Investing in place is a hard ask. It is much
easier to have an allocation to affordable
housing that sits within a real estate
allocation and may bring benefits to UK
places that include one’s own backyard.
– LGPS Investment Manager
Start with the asset classes and from there
we can approach how our investments
intersect with place.
– Pension Fund Advisor
Below we describe the nature and types of investments in
these five pillars and their role in delivering place-based benefits
followed by the financial case for investing in these sectors.
Critical to PBII is recognising the interlinkages between these
sectors and how we develop place-based approaches that
bring together multiple stakeholders in more coordinated and
joined-up investment strategies that benefit local people and
places through both their direct and multiplier effects.
THE FIVE PILLARS OF PBII
Affordable housing is a cornerstone of community and
economic development, generating health, employment
and community wellbeing benefits. Lack of housing
affordability has reached a crisis level in many UK cities,
such that investing in genuinely affordable housing is a top
priority for PBII. Housing associations are important
providers of affordable housing and recognised as ‘anchor
institutions’ in place-based development and partners for
institutional investors.
Affordable housing investments include social rent,
affordable rent, shared ownership, private sale, private
rent, specialist supported housing, and shared living (e.g.
independent living for older people). Such investments are
typically managed by real estate investment firms as well
as specialist social housing fund managers. Institutional
investors also invest in bonds issued by housing associations.
Small and Medium Enterprise (SME) Finance reflects the
importance of SMEs and social businesses to local
economies and communities. SMEs form the backbone
of local economies and account for more than 60% of
private sector jobs. They play a central role in localised
growth given their spread across high and low wage/skill
sectors and their presence across all communities, towns
and regions. SMEs, including start-ups, are a traditional
focus of local government policy and industrial strategies.
Investing in local SME development is key to inclusive
prosperity and levelling up, particularly investing in growth
sectors which provide quality jobs and support the
transition to a green economy.
10
Social businesses,
including social and community enterprises, play
an important role in more inclusive community-based
development and community wealth-building.
SME finance includes venture capital, debt and private
equity. Investment organisations include SME fund
managers, often investing in specific high-growth sectors,
Community Development Finance Institutions (CDFIs), as
well as specialist social investment intermediaries funding
social enterprises.
Clean energy and energy efficiency is prioritised in the
Government’s Industrial Strategy – new green industries,
businesses, technologies and jobs – as well as in build
back better policies aimed at renewing and decarbonising
towns and cities. Clean energy has been a focus of place-
based initiatives for decades. It is now a major focus for
institutional investors, including pension funds, who are
tied into commitments to reduce the carbon footprints of
portfolios and meet net zero targets.
Investments include solar, wind and other renewable
energy sources, waste-to-energy, green technologies,
retrofitting and installation of electric car charging points.
Such investments are typically managed by specialist
investment firms.
This section provides a framework for LGPS
funds and other institutional investors to
engage in place-based impact investing
either as something new or to build upon
existing investment activity.
We provide a mapping of the stakeholder ecosystem from
the LGPS perspective showing what types of relationships
and linkages are needed to implement the investment
model successfully. Then we provide data that demonstrate
the strong financial performance of the asset classes that
sit within these five pillars. Finally, we describe five traits
that define and distinguish PBII in order to build a shared
understanding and collaborative approach to its scaling up.
2.1 A CONCEPTUAL MODEL:
THE ARCHITECTURE OF PBII
The conceptual model shown below is intended to provide an
overall picture of the architecture of PBII. As place-makers,
local authorities and their strategic partners ‘reside’ in the
model’s foundation stone. The model positions LGPS funds and
other institutional investors in the capstone.
The five pillars are dual structures. On the one hand, they
represent policy themes or priority areas in local and regional
development strategies. On the other hand, the pillars are
sectors that fall within institutional investment strategies.
The pillars have to bear the weight of investor risk-return
expectations while meeting the inclusive-sustainable development
expectations of local authorities and strategic partnerships.
Successful delivery of PBII should be a win-win game. We can
add other pillars – for example, agriculture and forestry which
are important to rural authorities and LGPS funds.
2 A PLACE-BASED FRAMEWORK
FOR IMPACT INVESTORS
Chart 2.1 The architecture of place-based impact investing
Investing underpinned by impact investing principles and
impact measurement, management and reporting practices.
L
GPS funds and other institutional investors
IMPACT INVESTING
Source: The Good Economy.
Inter-
linkages
Multiplier
effects
Local priorities, needs and opportunities as defined by local authorities, strategic authorities and local stakeholders
SPECIFIC PLACE
HOUSING
SME FINANCE
CLEAN ENERGY
INFRASTRUCTURE
REGENERATION
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
11. UK Department of Business, Innovation and Skills, ‘Research to improve the Assessment of Additionality’, Occasional Paper 1, October 2009.
12. Modern Portfolio Theory (MPT) is a mathematical framework for combining a portfolio of assets such that the expected return is maximised for a given level of risk.
It uses the variance of the asset prices as a proxy for risk. Its key insight is that it is not the asset’s own risk and return which is analysed, but the contribution the
asset makes to the portfolio by also including the correlation of risk in the calculations.
2.2 THE STAKEHOLDER ECOSYSTEM
A core feature of PBII is creating an alignment of interest among all stakeholders in shared impact creation for the benefit of
local places and people. The key stakeholder groups described below all have a role to play in influencing levels of investing for
place-based impact by LGPS funds. They are depicted below showing their sphere of influence and their inter-dependencies. Their
perspectives on the challenges and opportunities for scaling up PBII are provided in Section 4.
Infrastructure investments have a powerful multiplier effect
and play a critical role in supporting local communities and
the local economy. “They can unlock an area’s potential,
enable residents to access new education, skills, and work
opportunities, support local retail and business areas, and
increase the viability of new sites for homes and businesses”.
9
Scaling up infrastructure investment is a central plank of
the Government’s levelling up agenda and a priority for
many local and combined authorities.
Infrastructure investments include transport (such as roads
and bridges), utilities, telecommunications and social
infrastructure (such as schools and hospitals). These are
large-scale, long-term investments in physical (real) assets
managed by specialist investment firms.
Regeneration here refers to physical development –
from the remediation of contaminated ‘brownfield’ land
to urban regeneration projects – but not the social capital
aspects of regeneration, such as community development
and employment and training. Authorities tend to pursue
a holistic, joined up approach to physical and social
regeneration. Institutional capital can have place-based
impacts by investing in regeneration schemes and helping
to ‘re-purpose’ town centres. Local authorities are already
busy reviving existing assets such as government buildings
and empty offices and high street shops.
Regeneration involves mixed use urban development
schemes, typically including residential, office, and retail
development, as well as improvements to public space
and amenities. Investors include those who fund new
developments and those who acquire properties once built.
Successful investments that constitute PBII are those that
produce positive social, economic and/or environmental
outcomes for specific local communities and economies
as well as appropriate risk-adjusted financial returns for
institutional investors. As such, PBII strategies must be
supported by an adequate evidence base on local needs
and priorities, including constructive engagement with local
stakeholders.
Stakeholder consultation and engagement is indeed
fundamental to PBII. This type of investing is about ‘boots on the
ground rather than eyes on screens’. It also requires developing
impact assessment and reporting systems to measure and
report on positive impacts achieved in relation to place-based
needs and priorities, and to understand and mitigate potential
negative local impacts.
The pillars can unify investors and local authorities by
providing a common set of place-based impact objectives
that are relevant from both a policy and investment
perspective and which foster collaboration and a sense of
shared purpose. See Section 5 for a proposed common impact
assessment framework for LGPS funds, local authorities and
fund managers, including place-based impact objectives.
When assessing place-based impacts, it is important to
recognise that public or private investors may intentionally
target specific places, however the impacts on people and
businesses may fall outside the prioritised geographical areas.
The smaller the area, the greater the probability that impacts
will benefit other areas outside of it. For example, an investment
may be made in a local business but employees may live
elsewhere. These ‘leakages’ have been highlighted in evaluation
studies of additionality in the case of place-based government
programmes.
11
Institutional investors adopting a place-based approach
can learn from the experience of government programmes,
including approaches to impact measurement. See further
discussion and a proposed common approach to impact
measurement, management and reporting in Section 5.
Successful investments that constitute PBII are those that produce
positive social, economic and/or environmental outcomes for
specific local communities and economies as well as appropriate
risk-adjusted financial returns for institutional investors.
LGPS MEMBERS
AND EMPLOYERS
are the central stakeholders
in this ecosystem. The
LGPS is the largest Defined
Benefit (DB) pension scheme
in the UK. Both employers
and employees pay into the
pension scheme which the
LGPS funds have a fiduciary
responsibility to manage on
their behalf. The majority of
scheme members (74%) work
for local authorities, while
around 25% are employed
by other public sector bodies
(such as higher education and
park authorities) or private
sector and voluntary sector
contractor organisations
which have been granted
admitted body status.
LGPS FUNDS
have a responsibility to
manage members’ pension
contributions and to act in
the best interests of scheme
members when managing
pension assets. Historically,
pension fund managers used
a narrow interpretation of
fiduciary duty and focused
on maximising risk-adjusted
financial returns. However,
today, all investment
institutions, including LGPS
funds, are expected to take
into account ESG factors in
making investment decisions
and many have defined
sustainability strategies.
Because the Pension
Committees decide and
oversee the pension funds’
investment strategies, they
play a key role in determining
them.
PENSION POOLS
are potentially important
players in place-based
impact investing. Pension
pools were established
following the Government’s
changes to the LGPS scheme
in England and Wales in 2015.
The aim was to encourage
individual LGPS funds to
pool their assets and invest
collectively, so the LGPS could
leverage its scale to improve
investment opportunities
and reduce costs. There are
now eight pools as shown in
Chart 2.3. Most are currently
prioritising allocations of
assets to core investment
strategies across public
and private markets and will
consider UK allocations as
part of portfolio construction,
including allocations to
sectors that are key for PBII,
particularly clean energy and
infrastructure.
CONSULTANTS
have a major influence
over the strategies and
decisions of many LGPS
funds, particularly the
smaller ones. These
comprise both individual
advisors who directly advise
pension committees, and
consultancy firms contracted
to provide investment advice,
advise on fund manager
selection and provide
portfolio management and
performance monitoring
services. Consultancy
firms tend to view
investment choices from
the perspective of global
financial markets and trends
using modern portfolio
theory
12
and focus research
and recommendations on
mainstream funds where they
expect broad applicability
and high client demand.
To date, they have shown
limited interest or appetite to
apply a place-based lens or
encourage impact investing.
FUND MANAGERS
are critical players in the
ecosystem as they manage
funds on behalf of the LGPS
funds and pension pools and
make decisions as to which
individual investments are
made into companies or
projects. Their activities are
based on objectives set by
the LGPS funds and pension
pools. Key to place-based
investing is finding and
selecting fund managers with
aligned place-based impact
objectives and the specialist
knowledge and capacity to
originate and make financially
sound investments. Currently,
it is the fund managers
selected directly by LGPS
funds that are most engaged
in place-based investing.
We analyse the state of the
market and types of fund
management models in
Section 4.
Chart 2.2 A Mapping of stakeholders
Source: The Good Economy.
CONSULTANTS
LOCAL REGION
MEMBERS IN RECEIPT
OF PENSIONS
ACTIVELY CONTRIBUTING
MEMBERS
LOCAL GOVERNMENT
EMPLOYERS
PENSION POOLS
FUND MANAGERS
PLACEBASED INVESTMENTS
Local government, residents,
local businesses and local
organisations
LGPS FUNDS
LOCAL BENEFITS AND REVENUES
Employer
pension
contributions
Pension
payments
Investment strategy and
manager selection advice
Individual
pension
contributions
Investment
Returns
Investment
Returns
Investment
Returns
Investment
Returns
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
2.3 THE FIVE TRAITS OF PLACE-BASED IMPACT INVESTING
The focus of this report is on how to scale up institutional investment in ways that deliver tangible benefits for local
people and places in order to achieve more inclusive and sustainable development across the UK. But what defines
and distinguishes place-based impact investing?
HERE WE BUILD ON OUR DEFINITION AND CONCEPTUAL MODEL TO IDENTIFY FIVE TRAITS THAT CHARACTERISE PBII:
Source: The Good Economy.
Contains OS data © Crown copyright
and database right (2021).
The geography of the UK’s Local
Government Pension Schemes
Local Government Pension Fund
Combined Authorities
Pension Pools
The ACCESS Pool
Border to Coast Pensions
Partnership
Brunel Pension Partnership
LGPS Central
Local Pensions Partnership
London CIV
Northern LGPS
Wales Pension Partnership
Non-Pooled Schemes
Northern Ireland
Scotland
1
First, PBII has a clear intentionality to achieve a positive
impact. Intentionality is a key characteristic of impact
investing. Typically, intentionality is defined in relation to
addressing a defined social or environmental need. PBII investors
need a bifocal lens – focusing on both ‘place’ and ‘impact’
is necessary. Intentionality in PBII should be geographically
bounded – where you are seeking to create a positive impact
is defined, alongside the types of social and/or environmental
outcomes to be achieved. Such intentionality can be articulated
by having impact objectives as well as financial objectives
within an investment strategy. Section 5 proposes a common
set of place-based impact objectives and an approach to
impact measurement, management and reporting.
2
Second, define place. Currently, the vast majority of LGPS
capital is invested in global funds and large multinational
companies in the listed markets and only a small fraction
is invested directly in the UK’s real economy. PBII is about
directing more capital to the UK and its local areas and regions
using a place-based lens. Effective PBII needs to consider the
cross-cutting nature of ‘place’ and ‘sectors’ (see Chart 2.4).
The target geography may differ by sector. For example,
infrastructure investments may focus at the UK level, whereas
SME investments may be targeted to a local area or region.
How LGPS investment is allocated geographically is analysed
in the next section. A PBII approach is focused on the sub-
national level – investing in ways that benefit specific local
areas or regions.
Chart 2.4 The intersection of place and sector
Source: The Good Economy.
National
Global with
national
exposure
Regional
Sub-Regional
LGPS Area
Sectors (Drivers of Impact)
Scale of Place
HOUSING
SME FINANCE
CLEAN ENERGY
INFRASTRUCTURE
REGENERATION
Chart 2.3 The geography of the UK’s
Local Government Pension Schemes
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
Return (% pa)
14. Fig. 15 PIRC (2020), Local Authority Pension Performance Analytics 2019/20.
15.Preqin (www.preqin.com) is a company that provides financial data, information and analytical tools for alternative assets.13. See PIRC (2020), Local Authority Pension Performance Analytics 2019/20.
Fund manager selection is important. The vast majority
of pension fund assets are managed by third-party fund
managers (see Section 4). The latest PIRC review notes that:
...the move into alternative assets has had
many positive benefits for funds but the
difference in manager skills has brought wide
differences in returns achieved.
– PIRC Review
This highlights that in contrast with index trackers and
traditional traded assets, the ‘alpha’ created by the fund
manager is variable and requires an assessment of the
manager themselves – not just the market beta.
Using the same approach, we sought to assess if the returns,
and relationship of returns to volatility are as compelling
within the UK as the PIRC asset class analysis which is based
on global portfolios.
FINANCIAL PERFORMANCE ANALYSIS
OF RELEVANT KEY SECTORS IN THE UK
We collected data on UK listed equities investing in these
key sectors which we referred to as ‘public markets’, as well
as ‘private market’ unlisted funds. A particular challenge in
assessing the market returns for UK investments in these
sectors is paucity of data. Due to financial regulation and
reporting requirements, there is far better financial reporting
and information in public markets. Private markets are
notoriously opaque compared to public markets. We used
Preqin to access available private funds data, which is a well-
recognised source of information for private funds.
15
PUBLIC MARKETS
The UK FTSE All-Share includes around 600 stocks and
represents approximately 99% of the UK market capitalisation
of equities. We identified 69 shares of operating businesses
and listed funds, including property (Real Estate Investment
Trusts or REITs) and Venture Capital Trusts (VCTs), which invest
in eight sectors relevant to the PBII pillars in the UK.
We then compared the return and risk characteristics of
these sectors versus the FTSE100. We analysed the returns
over the time periods highlighted in chart 2.6, then compared
these returns to the returns on the FTSE100 overall as a
benchmark over that same time period. The figures in green
are comparatively higher than their counterparts in red.
Property and alternatives have delivered
better levels or return, when adjusted for
the volatility, than might be expected whilst
equities have delivered a less efficient level
of return.
– PIRC/LAPPA
Looking to the risks, the PIRC review considers the risk and
return track record of the LGPS funds, using volatility as the
established measure of risk. The chart below from the report
shows that return for a unit of risk is highest for alternative
assets (private equity, hedge funds and infrastructure) and
property. This provides a compelling financial case to invest in
these asset strategies.
14
3
Third, engage with stakeholders. Effective stakeholder
engagement is a core trait of PBII. We regard PBII as
aligning with and supporting locally-defined development
objectives and priorities. It is the role of local and combined
authorities to determine strategic development plans and
these bodies should be regarded as key stakeholders at a
strategic and project planning level. For individual projects or
investments, stakeholder engagement should be widened to
include all relevant local stakeholders in the project planning
and design and how an investment can maximise local
benefits, and mitigate any negative risks.
4
Fourth, a hallmark characteristic of impact investing
is impact measurement, management and reporting.
For PBII, impact creation needs to be properly mapped and
measured. Hence, we need to know the geographical locus of
these impacts – ‘where’ is the next frontier of impact investing,
from where the capital originates to where it is deployed for
the benefit of people in places. Our approach to PBII impact
measurement, management and reporting is presented in
Section 5.
5
Finally, collaboration is critical to PBII. Currently, there
is often a fragmentation and lack of alignment in
decision-making across different stakeholders. Silos and
poor alignment also exist within organisations, including
government. For example, while one local government
department may be focused on social issues and how to
invest more in underserved areas, another department will be
looking at land and property development from a commercial,
revenue-generating perspective. The same applies to
investment firms. For example, firms may have teams
investing in real estate, another in infrastructure, and another
in private equity, all investing in the same places. To optimise
their impact in a specific place, coordination across teams is
necessary. Such conflicts and lack of alignment can be solved
by acknowledging shared impact goals and taking a more
place-based approach to investing.
2.4 THE FINANCIAL CASE FOR
INVESTING IN THE ‘FIVE PILLARS’
There is a clear sustainable development case to be made for
investing in the ‘five pillars’ as described above, but what about
the financial case? All pension funds (including LGPS funds)
have a primary purpose of managing and paying out pensions,
hence, their investments need to deliver the financial returns
that will enable them to fulfil this purpose. The PBII Project
carried out original research that found UK investments within
our PBII pillars can deliver risk-adjusted returns in line with the
financial return expectations of pension funds. The analysis is
presented below.
LGPS INVESTMENT APPROACH
Pension funds (including LGPS funds) are long-term investors
with liabilities up to 30 to 40 years in the future. They tend to
follow a traditional investment approach to build a diversified
portfolio across asset classes that will deliver the financial
objectives of the fund. When setting strategy, the LGPS fund
will take into account the expected level of return and the risks
associated with each asset.
Furthermore, the correlations of the asset returns are assessed
such that the assets demonstrate low correlations with each
other, yet overall deliver good portfolio returns. Conventionally
the volatility of the returns is used as the key determinate of
this risk, and diversification is used to reduce the correlation
between assets and therefore the volatility of the portfolio.
Therefore, there is an expectation that the more volatility that
is accepted, the higher level of return should be delivered.
This approach is the bedrock of Modern Portfolio Theory and is
addressed below when considering the financial case for PBII.
Asset allocations are generally reported as equities, bonds,
cash, property and alternatives. The majority of LGPS assets are
invested in equities (55%) and bonds (20%).
13
The PBII Project is interested in investments which will typically
fall within what is described as ‘alternatives’ or property.
Alternative assets refer to investments falling outside the
traditional asset classes commonly accessed by most investors,
such as stocks, bonds, or cash investments. Due to the alternative
nature of these, such investments are often less liquid.
According to the latest annual review by the Pensions and
Investment Research Consultants (PIRC), the allocation by local
authority pension funds to alternative assets has doubled over
the last decade to reach the current average level of 11% of
assets. Funds have diversified away from equities in an attempt
to reduce volatility. The move into these asset classes has
brought positive financial returns, with private equity delivering
the best performance (see Chart 2.5).
Chart 2.5 Longer term performance of alternatives
Chart 2.6 Asset class performance – 10 years (2010-2020)
Private Equity Infrastructure Hedge Funds
15
12
9
6
3
0
3 years 5 years
% pa
Volatility (% pa)
Alternatives
Total Assets
Equities
Cash
Bonds
Property
15
10
5
0
0 5 10
15
Source: PIRC 2020.
Source: PIRC 2020.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
16. PIRC (2020), Local Authority Pension Performance Analytics 2019/20.
A further observation is that private market funds are not
providing accessible data regarding the attractiveness of their
sectors – leading to their exclusion from studies on asset
allocations. This is a well-known issue for private funds which
consequently fall into the alternative asset space. Scaling up
PBII in private markets may require greater disclosure.
FINANCIAL PERFORMANCE ANALYSIS CONCLUSIONS
The results of the research suggest:
Investments in key UK sectors that align with our PBII
pillars provide stable, high, long-term returns and low
volatility versus other mainstream asset classes. As such,
these sectors appear very well suited to LGPS investment on
a purely fiduciary basis.
The universe of assets is, however, comparatively small
and often in the private markets, suggesting manager
selection and deeper understanding of the risks is
demanded of the LGPS and other interested institutional
investors.
In addition to these findings, these assets arguably possess
financial characteristics which are attractive to pension funds,
including:
The cashflow nature of the underlying assets. Investments
in most of these sectors are generally in real assets, such
as housing and infrastructure, so can also provide income
streams given they are underpinned by revenue generating
models. These returns are often inflation-linked, providing
a good match for inflation-linked pensions. As pension funds
mature and members enter retirement, the funds have an
increasing need for income generating assets.
Diversification
“through the cycle”. These assets are also
often underpinned by revenue streams which are either
government guaranteed or (through social transfer
payments) countercyclical. An example is social housing,
where demand increases in recessionary circumstances.
This suggests investments in these assets would provide
even further diversification benefits than are apparent in the
analysis above when considered through the cycle.
These assets are generally illiquid which often command
higher returns. LGPS liabilities are very stable and long-term,
hence the matching with illiquid assets may offer the funds
access to better returns. This is particularly pertinent when
contrasted with the high levels of investment by LGPS funds
into highly liquid Global Equity Trackers (currently c.20%
16
of
all LGPS assets).
More data is available privately. Many private funds do
provide performance data which is not available publicly
for a study such as this but may be made available to
investors and consultants. Therefore, a wider dataset
from the industry (LGPS funds, consultants or advisers)
supplementing this analysis would facilitate greater
understanding of the risk and return trade-offs.
This section would therefore conclude that on a purely risk
versus return basis, PBII assets can provide good investment
opportunities and should be considered as part of an asset
allocation perspective. Section 3 of this report goes on to
investigate further to what extent these allocations exist.
Source: Based on Bloomberg data, analysed in partnership with Centrus.*# is the number of constituent assets.
PRIVATE MARKETS
Sourcing private market data was more challenging due to the
limited level of consistent financial reporting by fund managers.
Private funds often simply publish the financial returns for
the end of their investment period, which disguises the asset
volatility and is not directly comparable to periodic returns (as
analysed in the traded assets in the previous section).
A total of 68 funds were identified that were aligned to our PBII
pillars and had a UK focus. However, many of these funds do not
report performance data on a consistent and regular basis,
nor in a format that is easily comparable to a simple quarterly
return figure.
Notwithstanding the data limitations, we were able to produce a
financial performance analysis as shown in Chart 2.8. No proxy
benchmark was used as a comparator. However, the relative
returns can be observed over similar timeframes using the
public market analysis above.
Chart 2.7 Results of financial analysis of listed funds in relevant sectors versus FTSE100
The results indicate higher returns (highlighted in green) for the time periods measured
for all eight sectors against the FTSE100, as well as a better return versus risk.
#* TIME PERIOD
MEAN RETURN % STANDARD DEVIATION % SHARPE RATIO
SECTOR FTSE SECTOR FTSE SECTOR FTSE
Clean Energy 7 Jun 13 – Sep 20
4.3 2.0
12.4
22.6 0.30 0.06
Utilities and General
Infrastructure
8 Sep 08 – Sep 20
6.9 5.1 20.0 30.5 0.31 0.14
Communications 3 Sep 08 – Sep 20
10.1 5.1 43.5 30.5 0.21 0.14
Transportation 5 Sep 08 – Sep 20
8.7 5.1
44.2
30.5 0.18 0.14
Medical Facilities 4 Sep 08 – Sep 20
6.9 5.1 23.5 30.5 0.26 0.14
Student Housing 3 Sep 13 – Sep 20
10.2 2.5 26.0 22.9 0.37 0.09
Build to Rent 3 Dec 12 – Sep 20
11.0 3.6
27.0
23.1 0.39 0.13
SME Finance and VC 36 Sep 08 – Sep 20
9.1 5.1 25.1 30.5 0.33 0.14
Source: Preqin data and Centrus analysis.*# is the number of constituent assets.
Chart 2.8 Results of financial analysis of private funds in relevant sectors
The results are consistent with their listed peers and indicate higher returns
against the FTSE 100, as well as a better Sharpe Ratio over similar timeframes.
SECTOR #* TIME PERIOD MEAN RETURN %
STANDARD
DEVIATION %
SHARPE RATIO
Utilities and General
Infrastructure
7 Mar 09 – Dec 19
7.3 26.8
0.27
Private Equity and
Venture Capital
9 Mar 11 – Sep 20
24.4 46.4 0.52
SME Debt 3 Sep 13 – Dec 19
4.1 4.4 1.00
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
0 5 10 15 20 25
17. Local Government Pension Scheme Funds: 2019-20 England & Wales (MHCLG), for Scotland and Northern Ireland individual pension fund annual reports (2019/2020).
18. Data on LGPS fund holdings was collected, quality checked and compiled by investigative journalists and research associates Edward Jones and Nicole Pihan
via the WhatDoTheyKnow website.
This section provides a baseline analysis of the current level of investment activity that is
aligned to the PBII agenda by LGPS funds. LGPS funds do already invest in the sectors
we have identified as the pillars of PBII, namely affordable housing, SME finance, clean
energy, infrastructure and regeneration. However, they have typically made these
investments based on their financial performance and not considered them through
an impact or place-based lens. Analysing the scale and nature of these existing
investments is a good place to start when considering the potential to scale up PBII.
To investigate PBII-related activity by LGPS funds we carried
out a baseline analysis using three data sources:
1
Published LGPS data were analysed to establish the
size distribution of the UK’s 98 individual LGPS funds.
17
2
Annual reports were analysed for evidence of LGPS funds
intentionally allocating capital to local and regional areas
in their investment strategies. Intentionality is a hallmark
characteristic of impact investing – we are essentially
stretching this to ‘place’.
3
Data on the underlying holdings of each LGPS fund were
analysed to identify holdings that had a UK geographical
footprint and were aligned to the PBII pillars in terms of their
asset class or sector identity. This data was sourced through
Freedom of Information requests for the financial years ending
March 2017 and 2020.
18
It is important to note that there is
no consistent reporting by LGPS funds in terms of how asset
classes are described, nor is the geography of funds regularly
reported. Hence, compiling the data set for analysis required
detailed interrogation of the nature of the individual holdings.
3.1 THE SIZE DISTRIBUTION
OF LGPS FUNDS
LGPS funds have a highly skewed size distribution with a few
large funds and a long tail of small funds. The median value
is £2.2 billion with the range stretching from £0.4bn (Orkney
Islands) to over £22bn (Greater Manchester). Interestingly for
the levelling up agenda, seven out of the eight largest LGPS
funds are in the North and Midlands.
This size distribution reflects the underlying organisation of
local government and is strongly correlated with population
and employment size – and most obviously, public sector
employment.
3 A BASELINE ANALYSIS OF
INVESTMENT ACTIVITY BY LGPS FUNDS
Chart 3.1 The size Distribution of the individual LGPS funds
Source: The Good Economy.
Border to Coast Pensions
Partnership
Brunel Pension Partnership
LGPS Central
Local Pensions Partnership
London CIV
Northern LGPS
The ACCESS Pool
Wales Pension Partnership
Northern Ireland LGOSC
Scotland LGPS
Median LGPS
Fund Value
LGPS Value (£bn)
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
3.2 INTENTIONALITY AND
ACTION IN LGPS FUNDS
We analysed a representative sample of 50 LGPS annual
reports for 2018/19, including the 10 largest funds with the
remaining 40 differing in size and covering all home nations,
regions of England and asset pools. We carried out an in-
depth review of the funds’ annual reports, particularly their
investment strategy statements and portfolio allocations, for
evidence of:
Intentionality – evidence of a clear intention to invest in
the UK at the national, regional or local levels, including
the LGPS funds’ own geographic areas and within the key
sectors defined in our PBII pillars i.e. housing, SME finance,
clean energy, infrastructure and regeneration.
Action – evidence of investment in key PBII sectors
in the UK.
INTENTIONALITY
Only six out of the 50 LGPS funds reviewed (12%) demonstrate
a clear intentionality to make place-based investments as
stated in their annual reports. These six LGPS funds were:
Cambridgeshire, Clwyd, Greater Manchester, Strathclyde,
Tyne and Wear and West Midlands.
‘Place’ and ‘local’ have different meanings across these
pension funds. In some cases, ‘place’ is clearly defined as
the local catchment area for the pension fund concerned
(e.g. Cambridgeshire) or the region (e.g. West Midlands). For
others, ‘local’ can mean a UK nation. Clwyd Pension Fund,
for example, is interested in investing in Wales. Notably,
Clwyd is also the only fund to have any stated intent to direct
investment to deprived areas. The six LGPS funds spotlighted
for their place intentionality also reported making investments
in the five key sectors.
Of these six, only Greater Manchester has an approved
capital allocation to invest up to 5% of its total assets locally.
Examples of the investment strategy statements that we
interpreted as an intentional commitment to place-based
investing can be found at the bottom of this and the following
page.
A further 19 pension funds reported investing in these sectors
without any place-based intentionality. The overall results
of this analysis indicate the low base of observable LGPS
interest in place-based investing that currently exists.
We continue to engage in local investment opportunities and building
local talent, noting in particular, property and housing investment
within the West Midlands region and the pool of strong candidates who
have joined our teams from local schools, colleges and universities.
– Chairman’s Statement, West Midlands Pension Fund, Annual Report and Accounts 2019
The Fund holds an allocation to local investments currently consisting
of the Cambridge & Counties Bank and Cambridgeshire Building Society.
– Cambridgeshire County Council Pension Fund, Annual Report 2019
We are also making good on our commitment to harness the financial power and
unique long-term outlook of pension funds to drive regeneration and investment
in Greater Manchester and beyond, while at the same time providing a commercial
return that will allow us to continue to meet our obligations to our 370,000 members.
– Chairman’s Statement, Greater Manchester Pension Fund (GMPF) Annual Report 2019
The Panel has approved an allocation to Local Investments (up to 5% of total assets),
which has the twin aims of generating a commercial return and delivering a positive
social impact.
– Chairman’s Statement, Greater Manchester Pension Fund (GMPF) Annual Report 2019
Secondary objective: adding value through investments with a positive
local, economic or ESG (environmental, social, governance) impact.
– Direct Investment Portfolio, Strathclyde Annual Report 2020
The Fund is permitted to directly invest locally, subject to suitable
risk/return characteristics and there being clear value for money benefit.
– Tyne and Wear Investment Strategy Statement
We will look for investment opportunities across all sectors that offer
potential for catalysing economic growth, particularly in deprived areas.
– Social Investment Strategy, Clwyd Pension Fund Annual Report 2018-19
Contains OS data © Crown copyright
and database right (2021).
Annual report review: evidence
of place-based investment
Intention and action
Action
No evidence of action
Not reviewed
Source: The Good Economy.
Chart 3.2 Where intentionality
features in LGPS annual reports
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
19. £7.7 billion is invested in the key sectors with some degree of exposure to the UK, for instance funds with a European or Global footprint with assets in the UK. Of
this, £3.2 billion is held in investments with assets only in the UK.
20. The data submitted by two large LGPS funds (Greater Manchester and West Midlands) did not allow for the identification of individual unlisted investments having
been aggregated into broader alternative asset class groupings. For Greater Manchester value information for relevant investments in key sectors was sourced from
the 2019/2020 annual report where given. Only GLIL Infrastructure could be included. A similar method for West Midlands was used however only holding names were
reported in the 2019/2020 annual report. In this case we used the values from West Midland’s 2017 FOI data submission for relevant holdings which were listed in the
current annual report.
ACTION
We reviewed the LGPS holdings data to identify which
investments are in key sectors (as defined by the pillars in our
conceptual model – see Chart 2.1) and have exposure to the
UK. This aligns with the approach taken to analyse market
data presented in Section 2.3. The nature of the data available
makes it impossible to analyse whether the investments have
the key traits of PBII per se (see Section 2.4). However, it is within
this group of investments we will find investments supporting
place-based development and delivery of positive local impact.
Understanding the scale of this investment is, therefore,
important to assessing the baseline picture.
The level of UK investment in key sectors is currently very
small. As of March 2020, the value of investment in key sectors
totalled £7.7 billion, only 2.4% of the total value of the UK LGPS,
with at least £3.2 billion (1% of the UK LGPS) identified as being
invested within the UK.
19
Just over half the LGPS funds have made investments in these
key sectors within the UK. However, only seven funds made
allocations of more than 3%. The majority of LGPS funds making
such investments (36) made allocations of less than 1% (see
chart 3.3). The top three largest investors in terms of amounts
invested in key sectors in the UK are Strathclyde (£462 million),
Greater Manchester (£477 million) and West Yorkshire (£335 million).
Chart 3.3 Top 20 LGPS funds by the proportion invested in key sectors in the UK
RANK
(by % Value
in PBII sectors
– UK ONLY)
LGPS FUND NAME
VALUE OF LGPS
FUND AT MARCH
£ BN
VALUE IN KEY
SECTORS UK
EXPOSURE £ M
VALUE IN KEY
SECTORS
UK ONLY £ M
VALUE IN KEY
SECTORS
UK EXPOSURE %
VALUE IN KEY
SECTORS
UK ONLY %
1 Falkirk 2.2 140.6 84.2
6.4
3.8
2 Merseyside 8.6 747.9 314.2 8.7 3.6
3 Scottish Borders 0.6 29.2 21.6 4.6 3.4
4 Berkshire 2.0 80.0 68.9
3.9
3.4
5 Clywd 1.8 122.7 58.3 6.9 3.3
6 Worcestershire 2.6 85.6 85.6 3.3 3.3
7 Lothian 6.6 657.2 208.7
10.0
3.2
8 East Riding 4.8 333.5 128.5 7. 0 2.7
9 West Yorkshire 13.2 541.3 335.6 4.1 2.5
10 Southwark 1.6 67.1 37.3
4.2
2.4
11 Sutton 0.6 15.0 15.0
2.3
2.3
12 Strathclyde 19.8 671.6 462.6 3.4 2.3
13 Greater Manchester
20
22.0 47 7.4 47 7.4 2.2 2.2
14 Kent 5.7 110.9 110.9
1.9
1.9
15 Croydon 1.3 129.0 22.3 10.3 1.8
16 Teesside 3.7 84.7 51.5 2.3 1.4
17 Derbyshire 4.7 250.5 57.2
5.4
1.2
18 Nottinghamshire 5.0 170.7 57.6 3.4 1.1
19 West Midlands
20
15.3 206.3 168.2 1.3 1.1
20 South Yorkshire 8.2 243.0 88.2
3.0
1.1
Chart 3.4 Selected relevant investment activity by LGPS funds (as of 31st March 2020)
Percentage of UK focussed
investment in key sectors, 2020
by LGPS Fund
> 3.0%
2.1% – 3.0%
2.1% – 3.0%
2.1% – 3.0%
No investment in key sectors
(or not evident within data)
Source: The Good Economy.
Key sectors
Clean Energy
Housing
Infrastructure
SME Finance
Urban
Regeneration
Falkirk
Housing Fund for Scotland
Strathclyde
Iona Environmental Infrastructure
Scottish Loan Fund
Merseyside
Bridges Property Alternatives Fund
Enterprise Ventures Growth Fund
Clwyd
Foresight Regional Investment Fund
igloo Regeneration
Worcestershire
GIB Offshore Wind Fund
Invesco UK Residential Fund
Lothian
Resonance British-
Wind Energy Income
Scottish Borders
Dalmore Capital Funds
South Yorkshire
Bridges Sustainable Growth Fund
St Bride’s White Rose Partnership
Nottinghamshire
Nottinghamshire Community Energy
Foresight Nottingham Fund
Lewisham
London Enterprise Venture Fund
Social Supported Housing Fund
Berkshire
Gresham House British-
Strategic Investment Fund
South East Growth Fund
West Midlands
Finance Birmingham
Greater Manchester
GLIL Infrastructure
Resonance National Homelessness
Property Fund
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
Most LGPS investments are made through specialist fund
managers. Across the 2017 and 2020 LGPS data we identified
a total of 176 private and public funds in the key sectors
provided by 127 fund managers (see Annex 2). Some LGPS
funds also invest locally via joint ventures or make direct
investments as further discussed in Section 4.
A third of the SME finance funds identified have co-
investment from the UK Government (e.g. from the British
Business Bank) or Europe (European Investment Bank,
European Regional Development Fund). A small number of
clean energy and infrastructure funds have public backing,
in particular from the UK Green Investment Group and the
European Investment Bank.
It is a generally held belief that pension funds only make
large allocations to funds, in the range of £50 million to £100
million. However, we found that key PBII sector allocations
are generally relatively small size averaging less than £10
million. The median value of individual UK-only investments
was £6.4 million (£8.9 million for those funds with a wider
global footprint). Such an investment would account for
0.3% of the total value of the median-sized pension fund
(£2.2 billion). The SME finance pillar had the smallest size
investments (median value of £3.3 million for UK investments)
and infrastructure the largest (£20.7 million). A small number
of very large investments have been made, in particular to GLIL
Infrastructure, Greater Manchester’s being the largest single
investment of all identified holdings at £477 million. Of the
£768 million invested in REITs, VCTs and other public funds, the
median holding value was just over £370,000.
The total number of fund managers operating in the key
sectors has increased from 95 in 2017 to 116 in 2020 (22%). This
increase opens up opportunities for increasing investing in
these sectors, including for PBII, but also adds the challenge
of complexity for LGPS funds in understanding asset types,
the range of products and selecting fund managers. Selecting
and building long-term relationships with fund managers is
key to PBII – it requires long-term capital and a commensurate
engaged, long-term investment approach.
3.3 SUMMARY OF FINDINGS
The results of this analysis suggest that:
Few pension funds demonstrate intentionality to invest
with a local place-based lens, with only six pension funds
indicating investment intentions alluding to place. Only
one pension fund (Greater Manchester) has made a
specific target allocation to local investing.
In terms of action, there is currently a very small level of
direct investing into funds that invest in our key sectors
in the UK. Only 2.4% of the total LGPS value is held in
holdings in key sectors, of which at least 1% is focused on
the UK. This investment activity is concentrated in the
largest pension funds and a handful of smaller pension
funds with over 2% of their portfolio in key sectors.
Infrastructure dominates in terms of the scale of
investment. However, SME finance provides the most
opportunities for local or regional investment in terms of
the number of sub-national funds available to invest in.
Despite the low relative levels of intent and action,
investment into these key sectors is growing.
The number
of individual investments made, the total value invested,
the average size of investments, the number of LGPS funds
making such investments and the number of private
market fund opportunities have all increased since 2017. It
is within these sectors and through these fund managers
there is an opportunity to increase PBII.
The next section examines the barriers and solutions to
scaling up PBII and the investment models and approaches
currently being used that provide vehicles for PBII.
The split of investments was allocated further into the key sectors together with the level of geographical focus. This is shown
in Chart 3.5 below. This demonstrates that regional/local investments in key PBII sectors by LGPS funds amounts to only
£300 million.
The latest LGPS data was compared to that from 2017 and we
found that the number of funds has increased since 2017. In
2017, 106 private market funds investing in the key sectors were
identified within the LGPS data. By 2020 this had increased by
16% to 123 funds. UK-only funds saw the greatest increase at
22% (from 60 to 73 funds). The number of UK funds in all but the
Regeneration pillar increased – the greatest being in housing
where the number of funds almost doubled from 8 to 15. Total
public market funds increased by 62% (from 21 to 34). UK-only
funds rose by 63% (16 to 26). Again, the largest increase in
listed funds is in the housing sector with an increase from 7
to 11 funds.
Chart 3.5 Value of Investment in key PBII sectors by sector and geography, 2020
Source: The Good Economy.
National
Global with
national
exposure
Regional
or Local
HOUSING
SME FINANCE
CLEAN ENERGY
INFRASTRUCTURE
REGENERATION
£151.4m
£1,455m
£3,681m
£1.5m
£448m
£405.6m
£22.3m
£543.1m
£12.8m
£101.2m
£386.9m
£360.7m
£11.7m
£107.7m
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
CONFLICT OF INTEREST CONCERNS
LGPS investment managers active in local investing seek to
avoid any perceived political influence in managing the pension
fund assets. The reasons for this are (a) to stay very clear of
potential accusations of succumbing to political pressures,
and (b) to avoid the potential ambiguity it creates for the LGPS
fund when demonstrating they have carried out their fiduciary
duties. Some LGPS fund managers have experience of local
investments failing which has put them off investing locally.
Some LGPS funds highlighted how they were under regular
pressure from local authority members to invest more in local
projects. They explained that pension fund teams were wary of
commercially unviable propositions being put forward to them
by local authorities and, as a result, wanted to keep the door
between the LGPS and local authorities closed.
LGPS investment teams often believe that local politicians and
local government staff do not understand the commercial realities
of investing and what is financially viable for a pension fund.
Local government pension funds fear political
interference if they make a place-based
allocation.
– LGPS Investment Manager
Historically, there has been a real fear of the
conflict of interest associated with making
local investments.
– Pension Fund Advisor
Councillors are concerned that they could be
accused of vanity projects. Local investing
is seen as bringing reputational risk. Some
LGPS funds have made local investments that
have failed, so are now very wary of investing
locally.
– Pension Fund Advisor
Practically, the solution to overcoming conflict of interest
concerns is establishing governance and operational
arrangements that mitigate these risks. Greater Manchester
and South Yorkshire are notable examples of LGPS funds that
have succeeded in doing this – please see case studies on
pages 43 and 45).
This section presents the results of our stakeholder consultations with LGPS managers,
fund managers, local authorities, consultants and advisers. Out of these interviews and
roundtables we were able to identify the main perceived barriers to scaling up PBII as well
as possible solutions to overcoming these barriers, which are supported by examples
of current practice. Please see Chart 2.2 for the stakeholder map used to guide our
consultation exercise.
The second half of this section reviews institutional asset management models currently
used to invest in the five sectors that constitute the pillars in our PBII conceptual model
(Chart 2.1). We highlight a number of ideas on how to scale up existing or new models that
could mobilise greater flows of institutional investment to PBII.
4 STAKEHOLDER PERSPECTIVES
AND CURRENT PRACTICE
TIME AND MINDSET
It was frequently highlighted that LGPS funds have crowded
agendas, which now extend to formulating ESG and sustainable
investment policies. Understandably, opportunities to include
local investing and impact investing on investment committee
agendas are constrained. A first step towards getting PBII
onto agendas is to increase awareness and understanding of
PBII as a distinctive style of investment that generates fresh
opportunities for achieving good risk-adjusted returns and
sustainable investment objectives.
Traditional mindsets pose a further constraint. Institutional
investors tend to allocate capital to global capital markets
without proper consideration of the opportunity to allocate capital
‘closer to home’. Allocations to local investment opportunities
could deliver comparable returns and diversification benefits
while enhancing the economic development prospects of LGPS
members’ own communities. This ‘win-win’ game requires
investors to change mindset and use a spatial lens that enables
them to think and act globally and locally.
We do not consider a UK or place-based
lens in our investment strategy. All our
investments are in global funds, including
equities, real estate and hedge funds.
– LGPS Investment Manager
We just don’t consider a place-based lens.
This is a new way of thinking for me.
– Pension Fund Consultant
Financial drivers lead pension investors
to invest off-shore rather than investing
domestically.
– Pension Fund Advisor
The Covid-19 crisis has made this a very
timely topic. Interest is moving in the right
direction. There is far more focus on how
mainstream investors can create positive
impact for places than ever before. Now is
a good time to be looking at what and how
pension funds could do more to benefit their
local areas.
– LGPS Fund Manager
4.1 BARRIERS AND SOLUTIONS TO SCALING UP PBII
Practically, the solution to overcoming conflict of interest concerns is
establishing governance and operational arrangements that mitigate these risks.
LACK OF INVESTIBLE OPPORTUNITIES
Another barrier to creating scale in PBII is the perceived
lack of commercial investment opportunities. This can be
a more fundamental challenge if there is indeed a desire
to invest locally but the local economy is small or weak.
Clwyd Pension Fund in North Wales, for example, has a
strong commitment to local investing but there are limited
commercial investment opportunities in the local area. Given
this reality, it has defined its place-based investment strategy
as focusing on Wales and the North of England adjacent to its
local authority area, including deprived areas.
Developing a pipeline of PBII investment opportunities
requires local knowledge, relationships and investment
teams. LGPS funds active in PBII highlighted how a
combination of local knowledge and commercial investment
skills is critical to identifying local investment opportunities.
The investment sector is seen as highly concentrated in
the City of London with many fund managers having limited
knowledge or on-the-ground presence in the regions. Greater
Manchester’s success in allocating to PBII partly comes
from the fact it works with fund managers who have a local
presence. In some instances, it has insisted fund managers
hire local staff as a condition of investment.
This highlights the importance of fund managers having
investment teams that can source local investment
opportunities, engage with local stakeholders and develop
investment propositions that can deliver commercial returns
and positive local impacts.
LACK OF CAPACITY AND EXPERTISE
Having the time, expertise and skills to source and undertake
due diligence on PBII opportunities is the most limiting factor
influencing the level of PBII activity. Larger pension funds
are more likely to have the resources to maintain in-house
investment teams, cover the costs of due diligence in private
markets and manage the risks, so are correspondingly more
likely to diversify into PBII investments.
Greater Manchester Pension Fund, with over £20 billion AUM,
stands out as having an investment team with the skills and
competence to assess local investment opportunities across all
PBII pillars. But the set-up of this pension fund was seen as an
exceptional case by many stakeholders. Most LGPS funds have
very limited capacity comprising one-to-two person teams. The
extra resource required to perform due diligence on PBII relevant
funds or assets puts small pension funds at a significant
disadvantage.
The majority of LGPS funds are small and rely on consultants to
advise on their asset allocation and selection of fund managers.
Consultants focus on researching and recommending funds
which are at scale (typically over £1 billion) and attractive to
a large spread of clients. Many funds that operate in the PBII
pillars are relatively small, in the region of £100m to £1 billion, so
consultants do not spend the time and effort researching these
opportunities as they are regarded as sub-scale.
Many UK fund managers operating within key PBII sectors,
including affordable housing, SME finance and urban
regeneration, expressed major frustration at how it is easier
to raise capital from foreign pension funds than UK pension
funds, including LGPS funds. However, this is in part because
these foreign pension funds are larger with teams that are
experienced in private markets investing and seek out UK
investments to create balanced portfolios.
Increased capacity and expertise are also needed within local
and combined authorities to prepare PBII projects in ways that
can be considered from a commercial investment perspective.
Local government representatives highlighted how they have
the skills to make the cost-benefit and business case for public
investment, but do not have the competence and skills to
develop business models and investment cases that would
satisfy the requirements of commercial investors.
These are sectors that require specialist
knowledge to assess risks, do due diligence
and make good investment decisions.
– International Pension Fund Expert
You need an investment team that can
find deals locally – having the commercial
investment skills and capacity is critical.
– LGPS Investment Manager
Manchester has the power, the team and the
local authority backing.
– Fund Manager
Local authority planning teams are under
resourced. They need expert help to get
projects appraised and progressed to the
point of being able to raise commercial
investment, including pension fund
investment.
– Local Authority Representative
Scaling up PBII requires building capacity and expertise
to prepare, identify and carry out due diligence on these
investments – from a financial and place-based impact
perspective – including building expertise within local authority
teams, LGPS investment teams and consultants. A shared
approach and alignment of interest in PBII across the market
would help build capacity.
Expertise in these private market asset classes exists with
fund management firms, pension pools and consultants
experienced in alternative investments. We need to find ways
of connecting organisations across the value chain with shared
impact objectives and the right mix of knowledge, skills and
experience to scale up PBII transactions.
The barriers to PBII are all hurdles that
can be overcome rather than blockages.
– Investment Consultant
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
In 2016, Nottinghamshire Pension Fund invested
£1.5 million in Nottinghamshire Community Energy
(NCE). The pension fund’s investment provided long-
term funding to help finance the construction and
management of a solar farm with the aim of benefitting
the local community. The project also ran a shares
scheme for local people and businesses to invest
shares in the project.
NCE is a Community Benefit Society and receives
payments under the Feed-in Tariff scheme and income
from the export of electricity to the national grid. NCE
has a 25-year lease with the landowner.
Based in Rushcliffe, Nottinghamshire, the 5-megawatt
community solar farm creates the following benefits for
the local community:
Clean energy is generated to power 1,150 local
homes.
100% of surplus profits are used to provide an annual
£20,000 to a Community Fund. The fund supports
projects in Nottingham City and Nottinghamshire
that address renewable energy generation, wildlife
conservation, climate change mitigation, carbon
reduction and reducing fuel poverty.
Up to a 7% return for those who invested in the
shares scheme.
The LGPS fund’s investment in the project is a good
example of a direct investment by a pension fund
which delivers positive local environmental, social
and economic impacts and also involves community
ownership and a revenue-sharing arrangement that
provides long-term funding to local community-led
projects.
DIRECT INVESTMENT CASE STUDY:
NOTTINGHAMSHIRE COMMUNITY ENERGY
There are three main ways in which individual LGPS funds have
made PBII-aligned investments:
1
Direct Investments – here the LGPS fund invests directly in a
project or business, and there is no fund manager between
the LGPS investment committee and the underlying investment.
Such investments are relatively rare, although they can offer a
good route to local impact creation (see box on Nottinghamshire
Community Energy).
2
Co-investment strategies – here the pension fund co-
invests with a trusted partner in a specific place-based
project or investment vehicle with a targeted purpose with both
parties committing capital. An example of a trusted partner
would be a local development firm or a private equity firm with
specialist knowledge e.g. in renewable energy. Co-investment
strategies are a good vehicle for PBII as they typically involve a
high degree of local stakeholder engagement and the partner
brings expertise to develop and deliver projects (see box on
page 35 for co-investment examples). There is an opportunity to
scale up such co-investment models, including models bringing
institutional investors together with local partners in the private
sector, public sector and social sector, including local housing
associations and universities.
3
Third-party managed funds – here the investments are
wholly managed by an intermediary fund manager sitting
between the LGPS fund and the investment. This may be either
where the LGPS funds are pooled with other investors (“Pooled
Fund”) or held separately for the LGPS (“Segregated Fund”). The
overwhelming majority of LGPS funds are third-party managed.
Funds are either private funds or listed on a stock exchange (see
Section 4.3). A list of funds and fund managers identified from
the LGPS holdings data is provided in Annex 2.
4.2 INVESTMENT STRATEGIES
LEGAL & GENERAL CAPITAL, MEDIACITYUK
Legal & General Capital has been a pioneer in place-based
investing and successfully used joint ventures as a means
to invest locally across all PBII pillars. One example is its
investment in the development of Media City at Salford
Quays in Manchester. This investment was done through a
50:50 joint venture with Peel Group, an experienced local
development and investment company. This regeneration
project included affordable housing, office space including
for SMEs, education facilities and transport infrastructure.
The site which officially opened in 2012 has established
itself as an international hub for technology, creativity and
innovation, and is home to over 7,000 residents, students
and workers as well as over 250 businesses including BBC, ITV
and University of Salford. The site was the first development
in the world to acquire BREEAM Sustainable Community status.
MediaCityUK is currently in its second phase of development
and has since attracted investment from Greater Manchester
Pension Fund. Development of the area will continue to
deliver high quality residential and commercial properties,
sustainable infrastructure through extending tram and
pedestrian connectivity, and rejuvenated public spaces.
SLEAFORD RENEWABLE ENERGY PLANT –
BORDER TO COAST PENSION PARTNERSHIP
In 2020, Border to Coast, one of the English pension pools,
made a £40 million investment in a renewable energy
plant in Lincolnshire, a facility located in the geographical
area of the asset pool. This was Border to Coast’s first co-
investment and was made by the infrastructure team with
the aim of securing a reliable and secure return, particularly
from renewable energy. The partner is Greencoat Capital,
a specialist investment manager dedicated to renewable
energy infrastructure. The investment secures a minority
stake in the plant which is owned by Greencoat Capital
(acquired from Glenmont Partners Clean Energy Fund I in
2020) as part of the Greencoat Renewable Income fund.
RMPI Railpen, the pension manager for the £30 billion
Railways Pension Scheme is also a partner.
The plant uses both locally sourced straw, the majority
from within a 30-mile radius, and sustainable woodchip
to generate renewable power and heat. The plant has the
capacity to generate electricity for 65,000 homes, saving
50,000 tonnes of CO2 per annum and provides 30 direct local
jobs and a further 50 in the fuel supply chain.
CO-INVESTMENT CASE STUDIES
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
4.3 INVESTMENT FUND MODELS
When a fund manager is sought, a broad range of fund
structures are used. These comprise both unlisted (also known
as private funds) and listed funds i.e. funds which are listed on
a stock exchange but invest in the private markets. Below we
describe some of the key features of these fund models and
how they can be used to scale up PBII.
UNLISTED PRIVATE FUNDS
Most PBII-aligned investments are currently in private
funds set up as either a Limited Partner (“LP”) or Limited
Liability Partnership (“LLP”) fund. These are typical
structures in the private equity sector and well known
to investors and advisers alike. In an LP structure, investors
(including pension funds) invest the capital for the fund but
are not concerned with the fund’s investment operations
and management. They become Limited Partners (LPs)
and the fund is managed by a General Partner, typically an
experienced specialist fund management firm.
Most funds in PBII-aligned sectors operate at a national
rather than a local level (see Chart 3.5). Social and
affordable housing
is the fastest growing PBII-aligned
investment area with a rapidly increasing number
of funds seeking to raise institutional capital to address
different housing needs including general needs affordable
housing, specialist supported housing and homelessness
accommodation. Most of these funds operate at an
England or UK-wide level. However, these funds typically
engage locally with local authorities to identify projects
and gain planning approvals and they partner with local
housing associations or charities to manage the properties.
PBII funds would be regarded as those that clearly meet
locally identified social needs, have a high level of local
engagement and create good quality partnerships with
local providers.
The largest number of regional or local funds exist in SME
finance, such as those managed by Foresight and Mercia
which have successfully raised LGPS investment. There are
a broad range of funds within the SME finance space
including venture funds developed by local fund managers
e.g. Northstar Ventures. While venture funds play an
important role in supporting the growth of local businesses
it is more difficult for them to raise institutional investment
given the early stage and high-risk nature of venture finance.
Side-car arrangements can be used to provide a carve
out of an investment allocation to a particular local area.
For instance, Greater Manchester pension fund negotiates
with fund managers to set up side-car arrangements for
place-based allocations to the region within national funds.
‘Best efforts’ clauses are also used to carve out place-
based investment allocations. Here the fund manager
agrees within the terms of its legal agreement to make
‘best efforts’ to include local investments as part of the
investment strategy but is not obliged to commit to a
defined local allocation.
The Greater Manchester Property Venture Fund (GMPVF) was
created by the Greater Manchester Pension Fund in 1990.
It is a specialised vehicle for the LGPF to invest in property
developments in Greater Manchester and across the wider
North West area which generate a commercially viable
rate of return. GMPVF does this through site acquisition,
building design, direct property development and property
letting/management. GMPF has made a £700 million
allocation to GMPVF.
Since its founding, investments have been made in both
commercial and residential property, in doing so facilitating
economic development, long-term job creation and
improving the living standards for local residents. Examples
of investments include:
GREATER MANCHESTER PROPERTY VENTURE FUND
In total, the fund has developed more than 1 million square feet of commercial buildings and funded the construction
of more than 1000 housing units within the Greater Manchester area.
INVESTMENT USE OF FUNDS
Matrix Housing
Creation of joint venture to fund the construction of 240
affordable houses across the Greater Manchester region.
Airport City
Creation of 5 million sq ft for the construction of hotels, office space
and logistics infrastructure, likely creating significant numbers of jobs.
Crusader Mill
Provision of loan facility for the construction of 201 apartment buildings,
which will be targeted at local residents.
Deansgate Square
Debt funding for the construction of 350 apartment units
within the city centre.
First St, Manchester City Centre
Addition of 170,000 sq ft of office space for both established
firms and new SME enterprises.
Runcorn Industrial Warehouses
Provision of long lease storage units for local businesses and
Mancunian industry.
Stockport Sorting Office
Debt funding towards the construction of 119 new apartment
units and commercial spaces.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
Foresight Group is a global investment manager which
offers both private and public investment vehicles to
institutional and retail investors. Foresight Group has
products in the SME finance, clean energy and infrastructure
PBII pillars.
Within SME finance, Foresight has five exclusively
institutional, regional private equity funds which aim to fill
a funding gap for smaller companies through supporting
growth and innovation in ambitious SMEs. The regional
focus of the funds aims to stimulate enterprise, create
quality jobs and attract inward investment to the regions.
LGPS investors in the funds include Cambridgeshire, Clwyd,
Greater Manchester, Nottinghamshire and South Yorkshire.
The Regional Funds consist of:
Foresight Regional Investment LP (‘the Fund’) Case Study
The Fund makes initial equity investments of £1m-£5m in
the North West of England, North Wales and South Yorkshire.
It aims to deliver attractive economic returns with broader
long-term benefits for regional communities by applying
a professional approach to private equity investment in
this underserved and relatively uncompetitive part of
the market. The Fund’s region covers 36 Local Authority
Districts, 19 of which fall within the top 50 most deprived
areas in the country, while six make it into the top 10.
In Foresight’s experience, the incorporation of ESG principles
into its investment approach enhances the delivery of
commercial returns, while also generating broader long-
term benefits for the regional communities in which its
investee companies operate. These benefits cover a wide
spectrum from environmental issues and community
engagement on a macro level to specific social benefits
for individuals at a micro level. Throughout the life of an
investment, each company is measured against 40 KPIs
related to five principles. In addition, Foresight’s investment
strategy encompasses an outcome orientated approach
that identifies and measures the contribution of investee
companies to four societal challenges based on the
Sustainable Development Goals: quality employment at
scale, health, research and innovation, and sustainable
infrastructure and the environment.
The Fund’s progress is mapped on an annual basis.
Highlights to 31 December 2020 include:
£51.9m deployed to support SMEs in the region;
590 quality jobs created - an average increase of 56%
per company since investment;
33% of the Fund’s investee companies have a female
founder in their team versus the national average
of 10% for PE-backed companies. Female board
representation is 24%;
71% of portfolio companies have established
environmental policies;
86% of portfolio companies have formalised diversity
and inclusion policies; and
Portfolio companies have spent £2.6m on research and
development in 2020.
PRIVATE FUND CASE STUDY: FORESIGHT REGIONAL FUNDS
REGIONAL FUND SME FINANCE SIZE
Foresight Nottingham Fund Up to £2m £39m
Foresight Regional Investment Fund (North West
of England, North Wales and South Yorkshire)
£1m to £5m £58m
Foresight Midlands Engine Investment Fund
(MEIF) Equity Finance
Up to £2m £35m
Foresight East of England Fund £1m to £5m £100m
Foresight Scottish Growth Fund Up to £2m £20m
Bridges Fund Management is a private markets fund
manager specialising in sustainable and impact investment.
They strive to make investments that contribute to the
transition to a more inclusive and sustainable economy,
predominantly in the UK to date.
Founded in 2002, Bridges offer four investment products
to institutional investors in the PBII pillars of SME finance
(through private equity, debt and business support) and
regeneration (through both residential and commercial
real estate). All investment strategies focus on the social
and environmental themes of ‘Stronger Communities’,
‘Sustainable Planet’, ‘Healthier Lives’ and ‘Future Skills’.
These themes are closely aligned with the SDGs.
All four funding strategies have raised investment from LGPS funds.
PRIVATE FUND CASE STUDY: BRIDGES FUND MANAGEMENT
VEHICLE STRATEGY
CAPITAL
RAISED
INVESTMENTS
TO DATE
Bridges Sustainable
Growth Funds
Provision of £5m-£20m equity and business support
for organically growing companies having a positive
impact on people or the planet.
£321 million 54 businesses
Bridges Evergreen
Holdings
Provision of £10m+ long term capital (equity or debt)
for social and other mission-driven businesses.
£51 million 4 investments
Bridges Social
Outcomes Funds
Provision of working capital and management
and contract structuring support for providers of
Government commissioned social outcome contracts
– those where providers are paid for the successful
outcomes they achieve, not the services they deliver.
£58 million
(committed
to projects)
Over 40 projects
Bridges Property Funds
Investment in real estate that helps to reduce carbon
emissions, revitalise business and residential spaces,
regenerate communities and address unmet needs.
£656 million 63 properties
The regional focus of the funds aims to stimulate enterprise,
create quality jobs and attract inward investment to the regions.
CONNEQT BRIDGES PROPERTY FUNDS
With a JV partner and support from local agencies,
Bridges led the remediation of a former colliery
site in Cannock that had been identified as in need of
regeneration by Cannock Chase Council.
Called Conneqt, the site was developed into highly
environmentally sustainable Grade A industrial space
(BREEAM 2018 “Very Good” rated and EPC A rated).
The site was presold to generate a very strong financial
return, and the regenerated site is providing c.400 jobs
within the local community.
THE ETHICAL HOUSING COMPANY
BRIDGES EVERGREEN HOLDINGS
The Ethical Housing Company provides long-term,
stable accommodation for those in housing need, with
a current focus in Teesside, by acquiring properties and
renting them to people in housing need (48% of lettings
in FY2021 related to housing homeless households).
Its partner letting agency ensures tenants can afford
their bills and supports them in sustaining their tenancy.
Bridges’ vision is a best practice model for affordable
private rented accommodation that can be replicated
wherever there is housing need.
WHOLEBAKE BRIDGES SUSTAINABLE GROWTH FUNDS
Wholebake manufactures and sells gluten-free energy
bars, from its factory and distribution facilities in North
Wales (lowest 11-20% and 21-25% income and
employment deprived local authorities in the UK).
Their snack bars use natural ingredients and are aimed
at the healthier segment of the snack market.
Wholebake employs a workforce of about 200, about
90% of whom drawn from underserved areas and over
half being formerly unemployed.
GREATER MANCHESTER HOMES PARTNERSHIP
BRIDGES SOCIAL OUTCOMES FUNDS
Greater Manchester Homes Partnership is designed to
tackle homelessness in Greater Manchester by providing
entrenched rough sleepers the intensive emotional and
practical support to sustain their tenancies.
It is a partnership between Department for Communities
and Local Government, Greater Manchester Combined
Authority, Shelter, Great Places Housing Group and
The Brick. Bridges provides project finance and project
management support.
Through the project, 323 rough sleepers have moved
into accommodation, with 91% having sustained the
accommodation for more than 3 months.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
Greencoat Capital is an asset manager which offers institutional
investors the opportunity to invest into a diversified portfolio
of UK and European renewable infrastructure assets delivering
inflation-linked cashflows. It has successfully raised capital
from a number of LGPS funds and represents a good example
of how listed funds can bring scale to these key PBII sectors.
The business model brings institutional capital into the
operators of infrastructure assets. Greencoat will buy the
physical assets from a utility which allows the utility to
free up capital and build further assets. Greencoat work
with the operator as owner of the assets in a model known
at ‘AssetCo + OpCo’ - Greencoat is the AssetCo (or Asset
Company) and the utility is the OpCo (or Operating Company).
Greencoat Capital is one of the UK’s largest investors in
the resource efficiency and renewable energy market, with
approximately £5.5 billion under management. Greencoat
focuses on solar, wind and bioenergy, with selected other
green infrastructure opportunities such as renewable heat.
Founded in 2009, Greencoat has built an experienced team
of around 50 investment professionals headquartered in
London and Dublin. The business verticals manage either
listed vehicles which are available to both institutional and
retail investors, or private funds. These include:
LISTED FUND CASE STUDY: GREENCOAT
INCEPTION VEHICLE STRATEGY MARKET CAP BN
2013
Greencoat UK
Wind PLC
Investing in 35 operating UK wind farms including onshore and
offshore, with net generating capacity of 979MW (equivalent of
almost 1m homes).
£2.2
2016 Greencoat Solar
Owns and operates 78 UK Solar PV generation assets with
inflation-linked revenues, consolidating a fragmented market.
£1.3
(commitments)
2017
Greencoat
Renewables PLC
Owns and operates 12 renewable infrastructure energy assets
with EURO revenues in the Republic of Ireland with a combined
capacity of 411MW.
€0.6
2019 Bioenergy Unlisted funds invested in bioenergy assets. –
LISTED PUBLIC FUNDS
Listed funds are a good investment route for institutional
investors, including pension funds. They may be invested in as
an allocation into a specific sector or as part of a general UK
equity allocation. They provide a far higher degree of liquidity
than private funds and, therefore, appeal to a wider investor
base. They can offer attractive long-term, income-earning
investment opportunities that are well-suited to the long-term
nature of pension fund investments. They are governed by
tighter restrictions than private funds but are very scalable.
Listed funds are prevalent in clean energy, housing and
infrastructure. Investment trusts and REITs are common legal
structures where we see strong growth opportunities for private
market investments, including PBII. Social and affordable
housing is one of the fastest growing areas for PBII (see box
on page 41).
One model that has developed as a means of attracting
institutional and retail capital into businesses that have large
capital expenditure commitments is the AssetCo + OpCo
model. This model is commonly used in infrastructure (see
the Greencoat example in the box below) and also being used
in social and affordable housing where pension funds buy
the underlying assets (AssetCo) and partner with a housing
association to manage the asset (OpCo). There are numerous
other sectors which use this symbiotic approach so that large
funds can access asset pools without taking on the operations,
leaving this to experienced specialist partners.
Venture Capital Trusts (VCTs) are listed funds designed to
encourage investment in small, unquoted, entrepreneurial
firms. Some LGPS funds have invested in VCTs (see Annex 2).
There is an urgent need to increase the level of quality,
affordable housing across the UK. Currently nearly 8 million
people are in housing need, ranging from people who
are homeless to those unable to afford to buy or rent in
the private market. Hence, we see investing in affordable
housing as a core PBII pillar.
There has been a rapid rise in institutional investment
in social and affordable housing over the last few
years bringing equity into the sector. Recent research
commissioned by the Impact Investing Institute found
that the social housing sector provides attractive risk-
adjusted opportunities for both equity and debt investors.
Social-rented property generates cashflows that can
provide investors with effective risk diversification that
is decorrelated from wider economic trends, especially
compared to commercial property trends. Occupancy rates
are high with less than 1.5% of stock vacant over the last
five years which underpins stable income streams and
high quality cashflow fundamentals.
Specific LGPS investments in social and affordable
housing include:
In November 2020, Teesside Pension Fund committed
£5 million to the Ethical Housing Company, which
operates in the Tees Valley, and provides affordable
homes to families in need. That is both a place-based
investment and an impact housing investment.
In December 2020, Greater Manchester Pension Fund
committed £10 million to the National Homelessness
Property Fund, managed by Resonance. That fund will
also focus on Greater Manchester, at least initially.
LGPS funds have also invested in social and affordable
housing funds including CBRE UK Affordable Housing Fund
which invests in a range of tenure types and Civitas Social
Housing and Triple Point Social Housing REITs which invest in
specialist supported housing. While these are national funds,
there is engagement with local authorities from identifying
sites to participating in Section 106 bids. Also most funds
have lease agreements with local housing associations who
manage the properties and provide tenant services.
Homes England takes a place-based approach and is an
important partner to institutional investors. It helps unlock
land, funds infrastructure and invests in new investment
products that can raise institutional capital at scale.
SOCIAL AND AFFORDABLE HOUSING: A GROWING INVESTMENT
OPPORTUNITY FOR INSTITUTIONAL INVESTORS
There is an urgent need to increase the level of quality, affordable housing
across the UK. Hence, we see investing in affordable housing as a core PBII pillar.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
FUND MANAGER SELECTION
The fund manager selection process and experience is critical
to scaling up PBII. Pension funds will review their managers
closely and will often be guided by advisers and consultants.
Consultants will often be employed to select the candidate
fund manager list for the LGPS funds to select from. As such
consultants perform a gatekeeper role to many LGPS funds.
The main trends observed in the process of investment
selections were:
Many of the fund managers in this space are relatively
small, specialist firms. Those LGPS funds that have a
commitment to PBII have the appetite and resources to
engage with and do due diligence on smaller fund
managers and make investment decisions.
However, the majority of LGPS funds rely on consultant
advice for strategic asset allocation and fund manager
selection and the smaller funds do not get considered.
This pattern tends to lead to bifurcation happening in
the market. Large fund management firms which are more
able to raise capital are successful but with more
traditional strategies. This contrasts with specialised niche
firms which often have a more impactful strategy/place-led
approach but find it challenging to raise capital.
Consultants are very risk averse. They focus
on funds that have broad applicability for
their client base not niche place-based funds.
Specialist funds are often seen as sub-scale.
Institutional investors, including pension
funds, often have a minimum investment size
of £100m plus.
– Fund Manager
4.4 CAPACITY, SKILLS AND COMPETENCE
– BUILD, BUY OR BORROW
Our research has found that good commercial investment
opportunities that achieve positive place-based impacts exist
within all our key sectors.
It appears that the universal requirement to scaling up
PBII is an increase in operational resource across the
ecosystem. This is needed to create commercial investments,
analyse these investments and aggregate them into viable
institutional funds. Resources are needed by local authorities,
LGPS investment teams, consultants and fund managers.
The investment returns from proper resourcing appear to
reward the cost, as exemplified by the experience of Greater
Manchester and South Yorkshire pension funds. A cost cutting
approach from origination to fund management will work
against the objectives of growing PBII and the benefits to the
local economies.
In order to meet this capacity challenge, we have observed
approaches we broadly classify as ‘building’ capabilities,
‘buying’ in the skills or ‘borrowing’ the capacity from other
institutions e.g. government-backed development finance
institutions or pension pools.
Greater Manchester Pension Fund provides a leading example
of an LGPS fund which has built significant capacity for place-
based investing and also buys in expertise (see case study
on page 43). South Yorkshire Pension Authority has relied
on buying in expertise, primarily from CBRE to help source
investments and manage funds (see case study on page 45).
In London, LGPS funds can borrow capability from the pension
pools which have created the London Fund to make place-
based impact investments (see case study on page 47).
Greater Manchester Pension Fund (GMPF) is the largest LGPS
in the UK. The Fund is managed by Tameside Metropolitan
Borough Council. The Fund has around 380,000 members
and total assets were £22 billion as of 31 March 2020.
GMPF is one of the only pension funds to have an explicit
allocation to local investment with the twin aims of
generating a commercial return and delivering a positive
local impact. This has been a consistent part of their
strategy for decades: the fund first made an allocation to
invest locally 25 years ago. GMPF has built its investment
capacity over time and today has 7-8 investment
professionals and a pool of investment professionals
who do due diligence and investment structuring. The
current 5% allocation sits within ‘alternatives’ with specific
allocations to private equity, private debt, infrastructure
and property, including Private Rented Sector (PRS) and
affordable housing.
Local investing was originally defined as the Greater
Manchester region, however, this has recently been
extended to the North of England. This decision is partially
to enable greater diversification but also to support
collaboration and pooling arrangements with Merseyside
and the other Northern Pool funds.
The GMPF investment team have close working relations
with the Greater Manchester Combined Authority (GMCA)
and have established a governance structure and capacity
to make joint local investments. This relationship has been
built up and strengthened over the past five years. The 2014
Devolution Agreement was critical to the establishment of
the investment team within the Combined Authority (now 15
person strong). Central government provided a combination
of grant funding which covered staff costs and risk capital
which underwrote the risk of early investments. The first
joint investment was GM Housing Investment Fund in which
GMPF invested £100m. This invests in new Build-to-Rent and
Build-for-Sale housing schemes brought to them by private
developers. The fact that the GMCA can structure finance
as mezzanine finance is helpful in leveraging in pension
fund investment.
Both the GMPF and GMCA investment teams are driven
by market opportunities that meet their risk and return
profile. The regional economic development strategy is
implicit in what they do.
GMPF actively seeks out opportunities that deliver a
positive impact. It was a founding investor in the Invest 4
Growth initiative established in 2014 with a number of other
LGPS funds. A total of £50 million was raised and invested
in SME and impact focused funds UK-wide but with some
investments having a local impact, including investments in
Bridges venture, property and social impact bond funds.
Following on from the Invest 4 Growth initiative, GMPF
has approved an allocation of up to 2% into an Impact
Portfolio. This portfolio has the same twin aims of
generating a commercial return and delivering a positive
local impact. GMPF is seeking to collaborate with other
pension funds, specifically the Northern Pool members, to
develop a diversified portfolio and achieve cost benefits
from greater economies of scale. Investments include
Mercia’s SME Loan Fund and most recently a £10 million
investment in Resonance’s National Homelessness Property
Fund 2. GMPF negotiates side car vehicles with fund
managers to ring fence their investment to the local area.
GMPF also makes direct investments in regeneration and
property development schemes through joint ventures. The
Fund’s flagship development is 1 St Peter’s Square which is
seen as a catalyst for further development and regeneration
in Manchester.
Neither GMPF or GMCA have a systematic approach to
impact measurement, management and reporting. They
have evidence that their local investments have created
improvements to the local economy, including business
development, job creation and provision of affordable
housing. Both are interested in our initiative to develop a
common impact reporting framework and will participate
in the working group. GMPF believe that diversification is
important to reduce volatility of the overall Fund return, and
that local investments have provided such benefits.
BUILD CASE STUDY: GREATER MANCHESTER PENSION FUND
GMPF is one of the only pension funds to have an explicit allocation to local
investment with the twin aims of generating a commercial return and delivering
a positive local impact. This has been a consistent part of their strategy for
decades and the fund made a 5% allocation to local investment 25 years ago.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
South Yorkshire Pension Fund is the eighth largest
LGPS fund in the UK as of 2020. Uniquely the fund
is administered by the South Yorkshire Pensions
Authority (SYPA), a democratically accountable single
purpose pension organisation, which manages the
pension schemes of the four district councils (Barnsley
Metropolitan, Doncaster Metropolitan, Rotherham
Metropolitan and Sheffield City Council) and nearly 600
other employers. In 2020 the fund had 161,477 individual
members and a value of £8.2 billion. Since 2018, the
majority of the Fund’s investments are managed by Border
to Coast Pensions Partnership. However, around 30%,
including a very substantial legacy alternatives portfolio
is currently directly managed by SYPA. This will reduce to
around 3% when the pooling process is completed and the
legacy alternatives portfolio has been fully realised.
SYPA has a longstanding commitment to investing within
the South Yorkshire region with the aim of generating a
commercial return and positive local impacts. SYPA has
made investments across all the key PBII sectors including
SME finance, affordable housing and renewable energy. The
Authority prefers to make use of external managers in this
area in order to minimise conflicts and ensure a neutral
evaluation of the commercial merits of specific proposals.
In 2019, SYPA established a specific allocation to
development finance in South Yorkshire and appointed
CBRE to manage this allocation, including originating
and appraising opportunities. As these are direct lending
transactions SYPA has to make the final investment decisions.
The South Yorkshire Pension Fund currently has an allocation
of £80 million and is expected to make loans in the range
of £10-15 million with a current return across the portfolio
of 6.75%. The fund works in tandem with the JESSICA (Joint
European Support for Sustainable Investment in City Areas)
Fund, a regional investment fund with EU funding which
supports local and regional economic development.
Councillor Sue Ellis, Chair of the South Yorkshire Pensions
Authority when the CBRE mandate was awarded said:
We are pleased to be working with CBRE to
achieve financial returns for our scheme
members while at the same time supporting
delivery of investment in communities
across South Yorkshire. This is an example
of an area where we can achieve the
commercial return we need to pay pensions
at the same time as ensuring the delivery
of schemes which will improve the long
term prospects of the local economy.
SYPA’s local investment strategy is to target long-term
investments which are designed to tackle local economic,
social and environmental challenges which would not be
addressed by traditional commercial investors.
To date, loans have been approved for the following projects:
Redevelopment of former foundries into 52 low carbon
homes in Little Kelham, Sheffield targeted at young
graduates and supporting regional policy to stop the
‘brain drain’. The SYPA funding complemented funding
from the JESSICA Fund and other regeneration funding
streams.
Regeneration of an old coalite plant in Bolsover,
Derbyshire in partnership with Derbyshire County Council
the site is within the Sheffield City Region). Public funding
was used to finance remediation works, with pension fund
investment used to fund the infrastructure, including
sewers and roads. The site will provide business space
and is expected to contribute to the creation of over
2,000 local jobs, and the fact of this funding has
attracted the first lettings to the site.
Construction of a grade A office building as part of a new
development opposite Sheffield station. This complements
two previously developed buildings and completes the
redevelopment of a significant gateway site.
SYPA also invests in third-party managed impact funds,
including those managed by Bridges, Foresight, Triple
Point and Civitas. These are not regarded as routes to
achieving local place-based impact, however, they meet
target returns and are viewed positively because of their
impact focus, including on SME development and social
and affordable housing.
SYPA has a unique governance arrangement which
guards against conflict of interest while maintaining
close engagement with its membership and local and
regional stakeholders. Regular consultations are made
with the pension fund members to take their concerns
into account. In addition to investment opportunities
scouted out and originated directly by CBRE, many of the
local investment opportunities are proposed through city
region structures, themselves products of the wishes of
local constituents. Many of these communities represent
former miners and colliery workers, ensuring traditionally
neglected and deprived communities can shape the
direction and composition of local investments. As such,
communication and stakeholder engagement at the local
level are incorporated into the investment process for a
large portion of investments.
BUY CASE STUDY: SOUTH YORKSHIRE PENSION FUND
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
4.5 THE ROLE OF PENSION POOLS
Pension pools are building their capacity and skills in private
markets investment and could potentially play an important role
in scaling up PBII.
21
The asset pools were only relatively recently
set up and are at different stages of their pooling arrangements.
Most are currently focused on carrying out due diligence and
making allocations to their largest asset classes – gilts, equities
and fixed income. However, there is now an increasing focus on
building specialist investment teams to increase private market
allocations including sectors of interest to PBII, such as clean
energy, infrastructure and SME finance. In general, the pension
pools do not take a place-based lens and their willingness to
consider PBII products depends on partner LGPS fund interest.
One pension pool representative made the following comments
which illustrate a commonly held position among the pools:
All of our alternatives strategies are global in
nature. We have permitted ranges for each
geography, but UK is captured within Europe.
There is no discrete allocation for the UK. We
will consider UK only strategies as part of
our portfolio construction, but there is not a
specific target to do so.
If our Partner LGPS Funds collectively have
interest in greater place-based allocations,
the geographic ranges for our strategies
could potentially be changed to facilitate
such allocations. We could launch additional
products to meet client needs, but this is
a matter for the executive and Board, and
would require sufficient interest in capital
terms. It would also require sufficient
bandwidth to launch such a product.
Pension pools were keen to highlight how some of their private
market investments will be in the UK and have positive local
impacts. See, for example, the Border to Coast investment in
Sleaford Renewable Energy plant (see box on page 35).
However, there is an opportunity for individual LGPS funds to
work more closely with the pension pools and borrow their
private markets expertise to increase investments in PBII. The
London Collective Investment Vehicle (LCIV), the pension pool
for 32 London borough pension funds, has taken the initiative
in this regard. It has set up a collective investment vehicle
to enable the individual pension funds to invest in projects
in London which have a positive impact. Local Pensions
Partnership Investments, a provider of investment services for
government pension funds, will manage the fund.
21. Chart 2.3 shows which LGPS funds belong to which pension pools.
The London Fund was launched in January 2020 as a
collaboration between two LGPS investment pools - the
London Collective Investment Vehicle (LCIV) and Local
Pension Partnership Investments (LPPI) – to enable London
LGPS funds to access investment opportunities in three of
the PBII pillars – housing infrastructure and SME finance –
across the Greater London area and surrounds. LCIV is the
Alternative Investment Fund Manager responsible for risk
management while LPPI has delegated responsibility for
portfolio management. The London Fund combines the local
knowledge of both parties which offers greater access to
resources and a wider investment pipeline than could be
achieved through individual management. LCIV and LPPI
represent clients based in the Greater London region.
The Fund aims to deliver:
Competitive investment returns with a target
return of CPI + 3%;
Positive social benefits including job creation,
affordable housing, local area regeneration and
positive environmental impacts; and
80% of the capital invested within London’s 32
boroughs (Greater London).
The Fund’s investment approach has been designed to
ensure the delivery of positive social outcomes within
the target geography. Each investment will be evaluated
using ESG criteria and be expected to align with the
London Quality of Life indicators published by the London
Sustainable Development Commission. This includes
themes such as decarbonisation, quality of housing and
health outcomes. Investors will receive periodic reporting
on the social outcomes delivered through the Fund’s
investments.
The London fund is aiming to raise £300-£500 million over
several years from individual London-based LGPS funds. In
December 2020, the the London Pensions Fund Authority
(LPFA) provided a £100 million commitment, followed by an
additional £50 million in March 2021.
March 2021 also included the fund’s debut investment in
Delancey and Oxford Residential’s DOOR SLP (‘DOOR’) ‘build
to rent’ housing platform which supports the development
of new quality housing stock for London.
DOOR is a dedicated residential investment vehicle -
part owner of Get Living, the UK’s leading build-to-rent
operator of large-scale residential neighbourhoods. DOOR
will facilitate The London Fund’s investment in housing
developments in areas such as East Village, Stratford and
Elephant and Castle. This includes almost 3,000 homes
under management, 1,870 homes under construction, a
further 3,500 in the secured pipeline, with an overall target
of 15,000 homes within the next five years. Get Living’s
institutional ownership, provision of long-term tenancies
and resident-only break clauses provide residents with
security of tenure.
This investment reinforces The London Fund’s focus on
investment opportunities in real estate that includes the
private rented sector affordable housing, regeneration
schemes and specialist accommodation such as senior
living and co-living.
BORROW CASE STUDY: THE LONDON FUND
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
This section sets out the rationale for having a consistent approach for LGPS funds to
measure, manage and report the sector, geography and place-based impacts of their
PBII investments. It suggests a common impact reporting approach, developed in
collaboration with representatives from LGPS funds, fund managers and combined and
local authorities. Impact reporting is the golden thread which can connect LGPS funds,
local authorities and local stakeholders.
5.1 WHY IMPACT MEASUREMENT AND MANAGEMENT MATTERS
Measuring, managing and reporting impact is integral to
impact investing. It is incumbent on impact investors to
measure and report on social and environmental outcomes as
carefully as they would financial outcomes. Impact investing
particularly favours transparent, consistent and comparable
measurement and reporting.
Impact reporting is about ensuring transparency and
accountability to all stakeholders as to how capital is being
invested. It should also be used to identify the risks of negative
impact and provide insights to improve delivery of impact
over time. Currently, few pension fund members know how
their pension funds are invested and there is very limited
communications with members about the nature of any local
investments.
The PBII project revealed how impact measurement and
reporting can be the golden thread that aligns and helps build
collaborative relationships and projects that benefit local
places and people.
Increasingly, investors are seeking to use impact data to drive
future investment decision-making, and not just report on
past performance. The aim is to elevate the analysis of impact
performance to the same level as financial performance
analysis. As the field of impact and sustainable investing
has matured, measurement is no longer just a question of
selecting metrics, collecting data and reporting on impact
performance.
The challenge is to integrate impact considerations into the
entire investment cycle – from selecting which investments
to make, to project planning, design and due diligence, to
investment structuring and exit. Key to impact investing is
managing what we measure. Hence, impact management
practices are as important as impact measurement with a
view to driving positive impact creation as well as financial
returns.
Impact measurement can also provide a common language
to bring together different stakeholders in a place, including
investors, local authorities, and local representatives from the
private and social sectors. Too often there are silos and lack of
trust between different stakeholders which can lead to a lack
of alignment and missed opportunities to understand different
perspectives and enhance local impact creation.
IMPACT MEASUREMENT AND MANAGEMENT
Impact measurement and management (IMM) is
the process of selecting and embedding social and
environmental performance considerations into the
investment cycle, collecting data, and using the
information to drive decision-making.
An IMM system is a set of activities
that cover, in broad terms:
Selecting goals and indicators that are
mission-aligned.
Setting targets and strategies most likely
to achieve and reflect these goals.
Measuring and analysing metrics to
understand what is happening in reality.
A good impact measurement system is therefore
capable of describing who is being impacted, in
what way, by how much and the contribution of the
organisation to the change in outcomes.
5 IMPACT MEASUREMENT, MANAGEMENT
AND REPORTING FRAMEWORK
5.2 STAKEHOLDER PERSPECTIVES ON IMPACT MEASUREMENT
Stakeholders were asked about the extent to which they focus on impact measurement currently.
Our key findings are presented below by stakeholder type:
LGPS FUNDS
All LGPS funds regularly monitor and
report on the financial performance of
all their investments but there is
limited impact monitoring and reporting.
Place-based investment opportunities
are typically selected based on their
potential to deliver commercial returns
with the fact that they are located
in the specified local area or region
regarded as inherently positive from
an impact perspective.
The main focus is on environmental
reporting at the portfolio level,
particularly reporting on the carbon
footprint of investments in line with
emerging reporting standards (such
as the Taskforce on Climate-Related
Financial Disclosure). Currently there
is little focus on social impact
measurement.
LGPS funds investing in funds in the
key PBII sectors do receive impact
data and reports from some fund
managers, particularly those that
have an impact investing approach
e.g. Bridges and Resonance. However,
typically LGPS funds make little use
of this information due to lack of
capacity and inconsistency of
reporting received.
There was a strong interest in
developing a common, consistent
and transparent approach to impact
reporting that would enable LGPS
funds to report on their local investing
activity to members. The conceptual
thinking of the PBII model (see Section 2)
was seen as helpful in articulating
and aligning investment strategies
to place-based impact creation and
reporting on impact.
LOCAL AND COMBINED AUTHORITIES
Local and combined authorities have
experience of impact measurement,
with some authorities having dedicated
expert staff. Measurement is related
to reporting on socio-economic and
environmental indicators and
outcome metrics that tie into local
development plans and the use of
public funding.
Many local and combined authorities
will capture data using a common
outcomes matrix related to local and
strategic plans and priority objectives
(see box on page 53 for examples).
This information will be published in
an annual report.
However, local council staff do not
routinely consider external investment
as a source of project finance. Instead
there is a reliance on public sector
funding and grants.
Hence, impact assessment is linked
to making the case for public funding.
It was recognised local government
lacks experience in making the
investment case, hence, capacity-
building on developing investible
propositions is also essential (see
Section 4).
Local government staff are not
familiar with the impact measurement
approaches being developed within
the impact investing community.
There is a strong interest in mobilising
institutional investment for local
development and sharing knowledge
on impact measurement to ensure
any approach ties into existing methods
and reporting metrics that are familiar
and useful to local and central
government outcomes performance
monitoring, while recognising
approaches need to work for all
stakeholders within the ecosystem.
FUND MANAGERS
Of the 176 identified private and public
funds, only seven produced dedicated
impact reports and another two funds
detailed their approach to impact on
their website. A further nine funds
produced dedicated sustainability/
ESG reports and seven funds included
ESG/sustainability reporting in their
overall annual reports.
Some fund managers, such as Bridges,
Civitas, Foresight, Resonance and
Triple Point, do provide impact
reporting on specific funds. Bridges,
in particular, has been at the forefront
of developing consistent approaches
to impact measurement and
management and established the
IMP which has become a leading
player in developing global reporting
norms and standards.
These funds see little demand for
impact reporting from LGPS investors.
However, within the investment
market more broadly they noted the
increasing interest and demand for
ESG and impact reporting.
Demand for ESG and impact reporting
has been greater from European
institutional investors than UK
investors.
Impact fund managers also noted
concerns over ‘impact’, ‘green’ and
‘SDG’ washing and wanted to be able
to demonstrate the robustness and
integrity of their investment strategies
from an impact perspective. Hence,
these fund managers would welcome
efforts to develop a common PBII
framework built on their experience
and which worked for the LGPS funds
and other institutional investors.
Currently, few pension fund members know
how their pension funds are invested and
there is very limited communications with
members about the nature of any local
investments.
– LGPS Fund Manager
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
22. https://sdgs.un.org/goals
23. https://socialvalueportal.com/national-toms/
24. https://esgsocialhousing.co.uk/
25. See the Global Impact Investing Nework’s IRIS+ system for measuring, managing
and optimising impact and the catalogue of IRIS metrics at https://iris.thegiin.org/
26. The IFC Operating Principles for Impact Management provide a framework for impact investors to ensure that impact considerations
are purposefully integrated throughout the investment process. See https://www.impactprinciples.org/
27. https://www.impactinvest.org.uk/wp-content/uploads/2020/11/Four-Good-Governance-Principles-for-Pensions_with-case-study.pdf
28. A related initiative is the Equality Impact Investing Project which brings together a range of social finance and equality actors to reduce
inequality and advance human rights through impact investing, https://equalityimpactinvesting.com/
29. https://impactmanagementproject.com/Footnotes on following page.
The working group
members were:
LGPS Funds
Clwyd Pension Fund
Greater Manchester
Pension Fund
Merseyside Pension Fund
South Yorkshire Pensions
Authority
Strathclyde Pension Fund
Local Government
Local Government
Association
Glasgow City Council
Fund Managers
Big Society Capital
Bridges Fund
Management
Foresight
igloo Regeneration
Nuveen
THREE CORE PRINCIPLES UNDERLINED THE DEVELOPMENT
OF THE IMPACT FRAMEWORK:
Principle 1 – Align with international and UK impact reporting best practice and standards.
The first principle was to align the approach with emerging international and UK best practice
and standards for measuring, managing and reporting impact. We aligned each impact
objective with the SDGs which are accepted as providing a universal set of impact goals relevant
to both national and local governments and the investor community.
22
Where possible we aligned the metrics to the National TOMS Framework which provides a set of
core Themes, Outcomes and Measures that provide a consistent approach to measuring and
reporting on social value (impact).
23
We also aligned the metrics to the Sustainability Reporting
Standard for Social Housing, a sector-specific ESG and impact reporting standard.
24
Where relevant, we also aligned with the GIIN IRIS+ metrics
25
and referred to the IMP five
dimensions of impact and impact classification system (see box on page 57). We also sought
to align with impact management standards, including the IFC Operating Principles of Impact
Management
26
and the Impact Investing Principles for Pensions
27
developed by the Impact
Investing Institute in partnership with Pensions for Purpose.
28
Principle 2 – Amplify place. The second principle was to design the framework so that ‘place’
– the locality of impact creation – is central to the reporting approach. ‘Who’ benefits, ‘how’
and importantly ‘where’ become key impact assessment questions. Ultimately the PBII Project
seeks to drive greater levels of investment to areas that have suffered from lack of investment
across the UK in support of locally-defined investment needs and opportunities. Hence
impact objectives should be defined that are relevant from both a local development policy
and investment perspective and foster collaboration and a sense of shared purpose among
stakeholders in particular places.
Principle 3 – User driven. The third principle was the framework should be useful and add value
for all stakeholders – notably LGPS funds (and other institutional investors), fund managers,
local government and local stakeholders. The focus was on developing a ‘right-sized’ and
practical output, that would enhance existing LGPS reporting. A specific need that we heard
from LGPS representatives was they were seeking a reporting approach that would help them
communicate with their members in a clear and straightforward manner about their place-
based investment activity.
During the period of the working group, we co-created a reporting approach that we believe is a
good starting point in building alignment and common impact goals among stakeholders and
a consistent approach to reporting on core metrics across the key PBII sectors. We recognise
this is a basic and simple framework that will need testing and further development to become
an approach that fully describes and reports on place-based impact creation.
29
A good impact
assessment would combine quantitative and qualitative data, including feedback from affected
stakeholders. Specific and systemic outcomes are not captured by this framework nor do we get
into a discussion of how to analyse and interpret the data.
5.3 APPROACH TO DEVELOPING A PBII IMPACT REPORTING FRAMEWORK
The Good Economy established a working group under the auspices of the project to help develop a common impact measurement,
management and reporting framework for PBII. This group aimed to develop an approach bringing together thinking and impact
assessment experience from local government, fund managers and LGPS funds already active in investing locally.
The framework has six components providing the fundamental
elements typically underpinning a robust impact investment
strategy and aligned with the Impact Investing Principles for
Pensions. These could be further developed and detailed by
individual LGPS funds to define a more bespoke PBII strategy
and measurement approach tailored to the pension fund’s
specific geographic and investment objectives.
1
Overall Impact Goal and Narrative – The overarching
place-based impact aim that the LGPS fund is trying
to achieve.
2
Place-Based Impact Objectives – Thematic or sector-
specific investment objectives that an LGPS fund should
align their place-based investments with.
3
Theory of Change – How the actions taken by the
LGPS fund contribute to the achievement and improvement
of positive outcomes.
4
Impact Metrics – How the LGPS funds would report on
place-based investment impact performance.
5
Impact Reporting – A basic impact reporting template.
6
Impact Management – The practical tools needed to
ensure the potential for place-based impact creation
is considered throughout the investment process.
1
OVERALL IMPACT GOAL AND NARRATIVE
The overall impact goal is a statement of the vision the
pension fund is trying to achieve through their place-based
impact investing. The purpose of specifying an overall impact
goal is to make a statement to help unite the portfolio around
a goal against which portfolio outcomes can be assessed. This
goal can be supported by a narrative that explains the rationale
for the LGPS fund’s commitment to this impact goal and makes
clear how it aligns with the LGPS fund’s overall investment
philosophy and approach.
An LGPS approach to PBII needs to consider the cross-
cutting nature of place and sector. From interviews with
LGPS managers, we know different LGPS funds have different
perspectives on place-based investing and varying degrees
of interest in investing locally. Some LGPS funds are most
interested in the scale of their investments in the UK or specific
nations (e.g. Scotland or Wales). Others are more interested in
defining commitments to invest in their locality or region (e.g.
Manchester, the North West or the North of England).
We have used ‘Target Geography’ throughout the approach
to refer to reporting at any of these geographical scales.
Each LGPS fund must define their own Target Geography. This
Target Geography may vary for different sectors. For example,
the LGPS fund may be interested in making infrastructure
investments in the UK or want to focus on regeneration investments
within a City Region. Meanwhile, its housing investments
might focus on a much wider commuter belt or alternatively
be specified to benefit deprived local areas or underserved
populations (e.g. providing social and affordable housing or
housing for people who are homeless in the local area).
5.4 THE PBII IMPACT REPORTING FRAMEWORK
LGPS
Fund
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o
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Chart 5.1 A geographic lens – different spatial resolutions
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
Examples of place-based impact goals that currently exist
in LGPS annual reports are given below. However, there is
an opportunity for interested LGPS funds to sharpen and
strengthen these statements into explicit impact goals and
impact objectives.
We are also making good on our commitment
to harness the financial power and unique
long-term outlook of pension funds to drive
regeneration and investment in Greater
Manchester and beyond, while at the same
time providing a commercial return that will
allow us to continue to meet our obligations
to our 370,000 members.
– Chairman’s Statement,
Greater Manchester Pension Fund (GMPF) Annual
Report 2019
Will look for investment opportunities across
all sectors that offer potential for catalysing
economic growth, particularly in deprived
areas.
– Social Investment Strategy, Clwyd Pension
Fund Annual Report 2018-19
We continue to engage in local investment
opportunities and building local talent,
noting in particular, property and housing
investment within the West Midlands regions.
– Chairman’s Statement, West Midlands Pension Fund,
Annual Report and Accounts 2019
2
PLACEBASED IMPACT OBJECTIVES
Defining clear impact objectives is important for an
impact measurement framework. These provide the objectives
against which performance and key results can be measured.
For PBII, we recommend setting objectives that reflect local
development priorities and objectives. Setting objectives in this
way helps create a consistent strategy and alignment between the
LGPS fund and the local authority. This will also drive consistency
of approach across the rest of the value chain – the fund
managers and underlying investment opportunities.
TGE reviewed the local and regional strategic development
plans from a wide range of local and combined authorities
to identify impact objectives that align to the five PBII pillars.
These objectives are defined in chart 5.2 below.
Chart 5.2 Common impact objectives for PBII
HOUSING
To increase the supply of safe, decent affordable
housing in the Target Geography
SME FINANCE
To increase business start-ups and business growth
in priority sectors of the Target Geography
CLEAN ENERGY
To reduce emissions and increase green infrastructure
in the Target Geography
INFRASTRUCTURE
To increase competitiveness and productivity in the
Target Geography
REGENERATION
To better utilise the derelict and vacant land in the
Target Geography
All branches of local government (local authorities, combined authorities etc) develop place-based strategic plans for their
area. These plans must align with the National Planning Policy Framework (NPPF) which has a purpose of contributing to
sustainable development.
These local strategic plans outline the vision of local government. For example:
Local government strategic plans also outline priority outcome areas for their Target Geography. These priorities typically align
with the five PBII-related pillars but will provide more place-specific outcome areas and objectives (see example in bold
below). Investors are recommended to review local strategic plans to get an understanding of local development priorities.
The West Midlands Combined Authority Strategic Economic Plan describes eight priority outcome areas: New
Manufacturing Economy, Creative and Digital, Environmental Technologies, Medical and Life sciences, HS2
Growth, Skills for Growth and Employment for all, Housing, Exploiting the Economic Geography.
In some cases, specific outcome measures and targets are articulated:
LOCAL GOVERNMENT STRATEGIC PLANS AND IMPACT MEASUREMENT APPROACHES
The purpose of the planning system is to contribute to the achievement of sustainable development. At a very
high level, the objective of sustainable development can be summarised as meeting the needs of the present
without compromising the ability of future generations to meet their own needs. – NPPF
Our vision is to make Greater Manchester one of the best places in the world to grow up, get on and grow old…
– Our people our place: The Great Manchester Strategy
The vision for the Glasgow City Region is: A strong, inclusive, competitive and outward-looking economy,
sustaining growth and prosperity with every person and business reaching their full potential. – Glasgow
City Region Economic Strategy
The NPPF – published in 2019 – describes a range of well-established environmental strategies, including mitigating
against the physical risks of climate change, minimising damage to the local environment and reducing greenhouse
gas emissions. These will be particularly relevant for the 74% of local authorities, and 8 combined authorities/city
regions who have declared a climate emergency.
Productivity outcome: Our workforce’s productivity will increase, positively benefiting the prosperity of
our residents. Metric: Labour productivity measured in Gross Value Added per employee. Currently 82% of
UK average – Target 100% of UK average. – Our people our place: Our Strategic Economic Plan 2020-2040:
Sheffield City Region
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
3
THEORY OF CHANGE
A ‘theory of change’ is a conceptual model used to
describe and map out how specific inputs and activities lead to
positive change, measured in terms of ‘outputs’ and ‘outcomes’.
For each pillar we developed a theory of change with the
working group participants. An example is provided below, with
all five theories of change available in Annex 3. These theories
of change provide a clear starting point for identifying what to
measure and manage to maximise impact.
4
IMPACT METRICS
The Good Economy developed a set of core portfolio
metrics for each impact objective that was reviewed and refined
with input from working group members (see Chart 5.4). These
are aligned to existing frameworks and metrics where possible.
These core metrics are proposed as a minimum impact
reporting standard. We recognise these measures are output
rather than outcome measures. However, they do provide a
useful, high-level snapshot of the nature and scale of the LPGS
fund’s investments in a particular locality. Where the LGPS fund
would like to report more fully on its place-based impact it would
need to work with its fund managers to collect outcome data and
more detailed analysis of local benefits. Working group members
agreed this was a useful common reporting approach and a
feasible starting point that could be implemented and become
a useful tool in communicating to pension scheme members.
INVESTMENT SECTOR IMPACT OBJECTIVE OVERALL METRIC SDG ALIGNMENT
Housing
To increase the supply of
safe, decent affordable
housing in the Target
Geography
– £ Invested in Target Geography
– Number of new homes built by tenure
type (Open Market, Shared Ownership,
Affordable Rent, Social Rent,
Specialist housing)
SDG 1
SDG 7
SDG 11
SME Finance
To increase business
growth in priority sectors
of the Target Geography
– £ Invested in Target Geography
– Number of businesses supported
(by size and sector)
– Number of additional jobs created
– Survival rate for businesses
supported
SDG 8
SDG 10
Clean Energy
To reduce emissions
and increase green
infrastructure in the
Target Geography
– £ Invested in Target Geography
– Reduction in embodied carbon from
energy used (CO
2
)
– Amount of clean energy generated
(GWh/yr) (by energy source)
SDG 7
Infrastructure
To enhance social,
economic and
environmental conditions
in the Target Geography
– £ Invested in Target Geography
– Assets under management in
the Target Geography £ and %
(by sector and geography)
SDG 9
Regeneration
To better utilise the
derelict and vacant land
in the Target Geography
– £ Invested in Target Geography
– Reduction in underutilised space (m
2
)
SDG 11
SDG 12
Chart 5.4 Impact objectives and key impact metrics
ACTIVITIES OUTPUTS
Members contribute to pension
LGPSFund Manager
Identify SME
investment
opportunities
Design funds
with focus
on specific
geographical
areas and
sectors
LGPS decides to invest in
Private Market Investments
LGPS invests in a fund
Increase in the number
of quality jobs (direct
and indirect)
Contribution to local inclusive
and sustainable development
SME growth
Increase in start-up and
survival rates of SMEs
Increased number
of SMEs
Bespoke Outcomes
based on the SME
business model
Bespoke Outputs
based on the SME
business model
Provide equity
investment
Provide debt
finance
Support
management
OUTCOMES IMPACT
Chart 5.3: Example basic Theory of Change for SME finance
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
New Homes
Local SMEs
Green Energy
Projects
Infrastructure
Projects
Regeneration
Projects
8.2
5
1.4
1.2
0.5
Annual place-based impact report
XX New homes built:
– XX Affordable homes to rent
– XX Shared ownership homes
to buy
– XX Supported homes
– XX SMEs supported
– XX additional jobs
(created or protected)
– XX less embodied carbon from
energy used (CO
2
)
– XX clean energy generated
(GWh/yr)
What are we invested in? (£m)
How is your pension supporting Target Geography?
Map of Target Geography showing
the location of investments
Where have we invested?
XX invested in:
– XX in sector 1
– XX in sector 2
– XX in sector 3
– XX reduction in
underutilised
space (m
2
)
Contains OS data © Crown copyright and database right (2021). © OpenStreet Map contributors.
The Annual Place-Based Impact Report is illustrative only. It is not based on real data.
Source: The Good Economy.
Chart 5.5 Example template for place-based impact reporting
LGPS funds could also consider using the IMP Impact
Class system to measure and report on their impact. The
Impact Class system is a useful approach to classifying
investments at the portfolio level based on the impact of
the underlying asset(s) and the contribution the investor
makes to that impact. Impact classes help differentiate
the type of impact that investments have, even when very
different measurement approaches are used.
Investments are classified as either:
Avoiding harm,
Benefiting stakeholders, or
Contributing to solutions.
The ‘ABC’ component of the impact classes is determined
through analysis of impact data – quantitative, qualitative,
and ESG data – of the underlying assets using the IMP five
dimensions of impact (what, who, how much, contribution,
risk). The approach can be used across all asset classes.
The classification of the underlying asset is combined with a
classification of the contribution the investor makes to that
impact, depending on how active or passive an investor is
and the extent to which capital is being provided to markets
that lack access to capital.
By categorising each investment against one of these types,
an LGPS fund could report against their overall distribution of
A, B and C investments and potentially set targets aligned to
these for their fund managers.
EXAMPLE SECTOR HOUSING
The below summary lays out a potential way of identifying
the degree of impact of investments in housing:
A avoid harm – The Fund has a negative ESG screen,
but most of the investment is housing for market sale
or private rental sector.
B benefit stakeholders – The Fund is building a mix
of regulated affordable homes, but the majority is for
market sale or private rental sector
C contribute to solutions – The Fund is building a
majority of regulated social and affordable homes
which will benefit those on benefits or low incomes.
THE IMPACT MANAGEMENT PROJECT (IMP) – ABC CATEGORISATION OF IMPACT
5.5 NEXT STEPS
The PBII Project has elicited a considerable amount of enthusiasm and interest in
developing a common approach to impact reporting for PBII. Following on from the
development of this initial common reporting approach, TGE plans to work with
supportive LGPS funds and fund managers to begin testing it out and building a
larger user group. By taking an iterative approach and learning from practical,
operational users of the framework over a reporting cycle, we will be able to
further refine the approach to create a series of tools that enable fund managers
to easily share their positive impact in a format that works for LGPS funds and
other institutional investors. Improving impact measurement, management
and reporting practices can help scale-up interest in PBII and drive more capital
towards investments that have positive impacts for local people and communities.
6
IMPACT MANAGEMENT
PBII requires an ongoing process of impact measurement,
management and reporting as described at the start of this
section. LGPS funds, and other institutional investors, should
seek to identify fund managers that have a genuine commitment
to positive impact creation and actively manage and report on
impact creation as well as financial performance in a robust
and authentic manner. This requires both LGPS funds and
fund managers developing policies and processes to ensure
impact creation and performance monitoring is considered
throughout the investment cycle.
5
IMPACT REPORTING
By defining simple standardised metrics, LGPS funds
will now be able to approach fund managers with a clear
expectation on reporting requirements. Reporting against these
core portfolio metrics could either be done as an appendix of
an impact report, or as a specific submission. The LGPS funds
would be able to collate individual fund data submissions to create
an overall portfolio impact report. We have created an example
template one-page report that the LGPS funds could populate
and share with members in their annual report (see below). This
is basic reporting. Good PBII impact reporting would combine
quantitative and qualitative data, including affected stakeholder
voice, to provide a holistic view of impact creation in relation to
place-based needs and opportunities.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
Thus, the obvious starting points here are:
To deploy the PBII model within existing national
strategies that aim to tackle regional inequalities –
such as the Devolution and Growth Deals, the National
Infrastructure Strategy, and the Industrial Strategy. All
these national strategies, – the Industrial Strategy and
Climate Change Adaptation Strategy – call for combined
public and private investment and are regionally focused,
impact oriented and require private investment to scale.
To deploy the PBII model as an umbrella for place-
based investment partnerships between commercial
impact investors, local and central government, leading
social investors, including foundations and local anchor
institutions that are both local economic and community
stakeholders and asset owners, for example, housing
associations and universities.
Devolution would be consistent with a national PBII strategy,
enhancing the gravitational pull needed to attract investment
professionals and fund managers to set up regional offices
outside of London. Collaborative PBII models work better with
face-to-face contacts and boots on the ground.
In the introduction to this report, we envisioned PBII in terms
of spatial confluences of capital from commercial, social
and public investors that are equitably distributed across all
regions of the UK. Levelling up is about creating this landscape
of investment activity with hundreds of PBII projects underway
right across the country, and with inequality within places
and between places diminishing over the next decade. This
is what success looks like. We have attempted to visualise
this evolution of the PBII landscape in Chart 6.1 – by 2030, the
country is ‘levelled up’.
In this report, we have presented PBII as a new paradigm for institutional investing using
the LGPS to explore its implications for ‘thinking and doing things differently’. We see
this paradigm as potentially having a much bigger reach: the aim should be for PBII to
become a main investment theme in the next decade for the UK’s leading pension funds.
Our analysis and evidence suggest that we are at the start of
a journey, but not at the starting line. PBII is already underway
in the LGPS sector. The Government’s levelling up agenda has
created a sense of urgency about tackling the UK’s place-
based inequalities and the need to increase investment in
local and regional economic development. The levelling up
agenda must go hand-in-hand with the climate change agenda.
These agendas create a discernible momentum behind PBII.
Our recommendations for building on this momentum are based
on the report’s analysis and stakeholder findings: what necessary
steps need to be taken to scale up PBII right across the UK?
6.1 A NATIONAL APPROACH TO PBII AND LEVELLING UP
Successful adoption of the PBII model presented in Section 2 should help to reduce place-based inequality for four reasons:
Firstly, the PBII model is grounded in local strategies
that already have inclusive and sustainable growth and
development as ‘baked in’ priorities and objectives – that
is why the PBII architecture is built upwards from the
foundation stone in Chart 2.1.
Secondly, the model’s five pillars are all key areas of
social and public investment driven by inclusive and
sustainable development needs of ‘left behind
communities’ – for this reason, they are central planks of
place-based approaches as well as investment opportunity
areas already existing within sectors and asset classes
familiar to pension funds.
Thirdly, PBII incorporates an investment approach based
on stakeholder collaboration and alignment of values
and objectives aimed at achieving intended inclusion
and sustainability impacts for the benefit of place-based
communities.
Finally, PBII includes an impact measurement, management
and reporting system for ensuring that investment
strategies are accountable for generating positive social,
economic and environmental outcomes, including for
disadvantaged communities and local businesses – that
is, impacts are both mapped and measured.
Our PBII model can be used to help tackle inequality within
places. It can be applied to any and every place, ‘rich or
poor’, ‘leading or lagging’. PBII for town centre regeneration is
needed everywhere, as is PBII in clean energy infrastructure,
social and affordable housing and business development.
The PBII model could therefore be integrated into a range of
community investment funds, such as the Levelling Up Fund,
the UK Community Renewal Fund, the Community Ownership
Fund and the Towns Fund.
To tackle inequality between places, the PBII model needs to
be framed by a national strategy for proactively supporting
the growth of PBII activity in areas of the UK where achieving
inclusive and sustainable development is a bigger and more
uncertain challenge. This tiered national-regional-local
approach is common to most government economic and
social policies.
6 MOVING FORWARDS
The aim should be for PBII to become a main investment
theme in the next decade for the UK’s leading pension funds.
Chart 6.1: PBII landscape: from levelling up to levelled up
Regional Inequality 2021 Regional Inequality 2030
Regional Inequality 2021 is based on current Regional gross value added (income approach)
per head of population estimates (ONS, 2018). Regional Inequality 2030 is illustrative.
Source: The Good Economy.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
6.2 RECOMMENDED ACTIONS
1
RAISE AWARENESS
Currently, institutional investors, including LGPS funds,
rarely analyse their investments using a place-based lens. Out
of longstanding practice, institutional investors allocate capital
to the global capital markets without giving much thought to
whether allocations closer to home could deliver comparable
returns and diversification while benefiting the development
needs of members’ communities. Our analysis has found that
less than 2.5% of LGPS capital is invested in the UK in ways that
could directly support local and regional economic development
and positive place-based impact creation.
We want to change this investment paradigm and scale up
investment in PBII for the benefit of communities across the
UK. Hence, we need to raise awareness and strengthen the
identity of PBII as an investment approach that could contribute
to inclusive and sustainable development across the UK, whilst
achieving the risk-adjusted, long-term financial returns required
by institutional investors. This requires actions that inform and
educate stakeholders about PBII, strengthen its identity, share
knowledge and experience, and influence attitudes, behaviours
and beliefs across the investment market.
2
INCREASE CAPACITY AND COMPETENCY
Our research has found that good investment opportunities
that achieve positive place-based impacts exist within all the
PBII pillars and key sectors. It appears that a critical universal
requirement to scaling up PBII is an increase in focus and
operational resource across the ecosystem. This is needed to
create commercial investment propositions, analyse these
investments and aggregate them into viable institutional
funds. Resources are needed by local authorities, LGPS
investment teams, consultants and fund managers. Some LGPS
funds have met this capacity challenge and are making PBII
investments. We identified three capacity-building strategies
which we classified as ‘build, buy or borrow’ (see Section 4.4).
Key to capacity building is a shared focus and alignment on
place-based impact creation by all key parties. The most
successful PBII projects involve partnerships and leveraging
the local knowledge and expertise that exists within specialist
investment firms and local partner organisations.
A first step in building capacity and competency is to increase
knowledge sharing and learning across the ecosystem. This
can help bring together different actors who together have the
knowledge and capacity to make things happen on the ground.
PBII is an area for innovation where there is a need to think
creatively and broadly about how we use financial tools and
partnerships to deliver investments that benefit local places.
Entrepreneurialism will have to play its part in finding the
answers. Local government, cities and combined authorities will
have an important role to play. They know their local priorities
and investment opportunities. Ultimately, PBII is about co-
creation and collaboration. There is also an opportunity to
examine how government funding streams linked to devolution
and the levelling up agenda can be used strategically to build
organisational capacity within local government and LGPS
funds and to create public-private sector, co-investment
models that attract institutional capital.
THE FIVE
CATEGORIES
OF ACTION
RAISE AWARENESS
SCALE UP
INSTITUTIONAL GRADE
PBII INVESTMENT FUNDS
AND PRODUCTS
5
1
2
3
4
INCREASE CAPACITY
AND COMPETENCY
PROMOTE ADOPTION
OF REPORTING ON
PLACEBASED IMPACT
CONNECT INVESTORS
AND PBII OPPORTUNITIES
WHAT
Establish the concept and practice of place-based impact investing by raising awareness and
understanding, drawing on the PBII model and experience described in this report.
The campaign will reach into all relevant stakeholder groups, including LGPS funds, other pension
schemes and institutional investors, investment consultants, central and local government, fund
managers, banks, public finance institutions and the social sector.
It will also reach across the country to gather a deeper understanding of the key issues facing places and
the opportunities for private finance – in coordination with public finance – to contribute to solutions.
WHO
The Impact Investing Institute to lead a targeted awareness raising and communications campaign,
working with partners including Pensions for Purpose, Local Government Association, trade bodies and
other interested organisations.
WHEN
Immediately and ongoing.
WHAT
Increase knowledge, skills and competency in PBII by improving access to information. Work will start
with the launch of a PBII Knowledge Hub to showcase this research, making the data and case studies
engaging and accessible, and supplementing it with key resources from aligned initiatives and partners.
Review how existing devolution funding and other government funding streams could be used to build
long-term capacity both to identify and develop PBII projects and to support investments that deliver
long-term risk-adjusted returns and impact.
WHO
The Impact Investing Institute to build on its popular Learning Hub to develop a PBII Knowledge
Hub, and to work with Pensions for Purpose to expand the Impact Investing Adopters Forum to
catalyse engagement on PBII.
WHEN
Over the next year.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
3
PROMOTE ADOPTION OF REPORTING ON PLACEBASED IMPACT
Impact measurement, management and reporting is a key
feature of impact investing that provides transparency and
accountability to all stakeholders as to the social, economic
and environmental benefits of investments. LGPS funds are
interested in consistent approaches to impact reporting
that would enable clear, transparent and accessible impact
reporting of UK and local investments to individual pension
scheme members.
During this project, we developed a PBII Impact Reporting
Framework in partnership with a group of LGPS funds, fund
managers and local authority representatives. This includes
a requirement to map all investments and report on key
performance metrics aligned to place-based impact objectives
(see Section 5). There was considerable interest in this initiative
and already LGPS funds are requesting fund managers to report
using the PBII Impact Reporting Framework. The next step is to
pilot the reporting framework and scale up its adoption so that
LGPS funds, other institutional investors and fund managers
report on both the financial and impact performance of their
investments with a place-based lens as a matter of course.
WHAT
Pilot the PBII Impact Reporting Framework. Encourage more institutional investors, fund managers
and local authorities to join the current working group.
Encourage LGPS funds, PBII-aligned fund managers and other institutional investors to map the
geography of their UK investments to provide greater transparency as to where capital flows in the UK.
WHO
The Good Economy to lead the further development and adoption of the PBII Impact Reporting
Framework, in partnership with the working group and other interested organisations.
WHEN
Over the next year, TGE will lead the further development and adoption of a common PBII impact
measurement, management and reporting approach. The aim will be to secure commitments to
report against the framework by October 2021 and publish the first impact reports by October 2022.
4
CONNECT INVESTORS AND PBII OPPORTUNITIES
One of the challenges within the PBII marketplace is the
difficulty of finding investible opportunities. Pension funds
interested in PBII described how it can be difficult to source high
quality investible opportunities that meet commercial investment
criteria. On the other hand, fund managers and project developers
highlighted the problems they face accessing finance.
There is a clear need to help connect and build the market
ecosystem in ways that facilitate greater investment flows
across the range of PBII investment opportunities and spectrum
of capital. There is a high degree of business dynamism and
innovation within all our PBII pillars in places and regions
across the UK. PBII investment opportunities are being
developed with local and regional stakeholder engagement,
but much of this activity is hidden to institutional investors.
Here we believe technology has a role to play in making PBII
investments easier and more accessible. Digital platforms
could help create better market information flows, reduce
search costs and provide investors with access to information
about potential PBII investment funds and projects. Digital
origination platforms already exist that help institutional
investors to source and make venture capital, private credit and
infrastructure transactions globally. Innovative and collaborative
approaches are needed to facilitate better information flows
and financial intermediation within the UK.
WHAT
Carry out and make available a review of existing origination platforms that could help facilitate
increased investment in PBII.
Engage with existing investor platforms with the aim of utilising one for PBII and / or explore scope
for a new platform dedicated to UK PBII.
WHO
The Impact Investing Institute to lead on a review of existing origination platforms and scope for the
expansion of an existing or development of a new platform for PBII.
Interest invited from market participants to explore how to overcome information barriers and
repurpose or build PBII platforms.
WHEN
Over the next year the Impact Investing Institute will produce and make available the review of existing
platforms and recommendations for the expansion or development of [a] new platform[s] – with a view
to any developments coming to market over the next three years.
5
SCALE UP INSTITUTIONAL GRADE PBII INVESTMENT FUNDS AND PRODUCTS
There is a need and opportunity to increase the number
and scale of institutional grade PBII investment funds and
products. Within clean energy and, more recently, affordable
housing, we are seeing the launch of new investment funds
some of which have reached significant scale and are mobilising
institutional investment, including LGPS investment. However,
the scale of PBII investment is still very small compared to
investment need.
Hence, scaling up PBII investment funds and products is a
priority. This includes engaging with impact-oriented investment
fund managers to formulate dedicated PBII funds in conjunction
with LGPS funds and pension pools. We also need to engage
with larger pension investors, such as Aviva, L&G and M&G, to
promote an allocation – or aggregate measurement of – PBII
investments in their existing fund products. Municipal bonds
also have a role to play in providing local authorities with direct
access to the capital markets for local development projects.
WHAT
Support and increase the number of PBII vehicles and instruments, and the scaling-up of innovative
investment models.
Promote increased allocation towards PBII within existing portfolios and products. Encourage the
aggregation of existing funds and investment opportunities, particularly with regards to government
initiatives.
Advocate for the use of government funding as seed or cornerstone capital in investment vehicles,
and as technical assistance to bolster investment capacity and capability.
WHO
Interested market participants, local and central government, public finance institutions, and social
and community organisations.
WHEN
Over the next 1-3 years.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
6.3 FINAL REFLECTION
Behind all of the discussion in this white paper is the idea that if
we can get PBII right and launched across the country – as a top
national priority within the levelling up agenda – then it is not
unrealistic to expect the UK to approach 2030 as a landscape
where place-based inequalities are becoming a thing of the
past. This is the horizon. Much of this report is about ‘getting
there’.
If we manage to accomplish this, the UK will be creating bridges
between London and the rest of the country and bridges
between financial capital and the real economy. Bridge-building
calls for collaboration and a sharing of money and method,
with impact investors of all kinds working closely with place-
based stakeholders from business, government and community
to get things done. There is a need for mutual learning and
understanding, as we have emphasised throughout this report.
This is where PBII as a force for good in the economy and society
can take us. Its impact-driven methods and metrics can also
help to sharpen up the levelling up agenda and make targets
and milestones more transparent. Through both money and
method, PBII can contribute to the long-term challenge of
making inclusive and sustainable development a reality in all
areas of the UK.
Behind all of the discussion in this report is the idea that if we can get PBII right and
launched across the country – as a top national priority within the build back better
and levelling up agendas – then it is not unrealistic to expect the UK to approach 2030
as a landscape where place-based inequalities are becoming a thing of the past.
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
TGE would like to thank the following people for supporting this project through
interviews, roundtables, and provision of data or information for case studies.
ANNEX 1 – LIST OF INDIVIDUALS CONSULTED
FULL NAME TITLE ORGANISATION
James Ridout Director, Private Equity AIMCO
Tim Manuel UK Head of Responsible Investment Aon
Tony Bartlett Head of Business, Finance and Pensions Avon Pension Fund
Amanda Latham Policy and Strategy Lead Barnett Waddingham
Pete Smith Principal and Senior Investment Consultant Barnett Waddingham
Andy Rothery Head of Finance Bath and North East Somerset Council
Simon Martin Head of Commercial Investment Bath and North East Somerset Council
Sam Gervaise-Jones Head of Client Consulting UK and Ireland Bfinance
Paul Doyle Director Bfinance
Anna Shiel Head of Origination Big Society Capital
Maggie Loo Partner Bridges Fund Management
Rishi Madlani Councillor Camden London Borough Council
Tessa Hebb Research Fellow Carlton University
Anthony Parnell Treasury and Pension Investments Manager
Carmarthenshire Council
(host authority for the Wales Pension Partnership)
Will Church Senior Director CBRE
Andrew Antoniades Executive Director CBRE
Carol Bulman Councillor Cheshire East Council
Simon Horner Innovation Director City of London Corporation
Paul Bridge CEO Civitas Investment Management
Debbie Fielder Pensions Finance Manager Clwyd Pension Fund
David Pollock Director Consilium Capital
Bev Dursten Managing Director Edgehaven
Aoifinn Devitt Head of Investment Federated Hermes International
Charis Duffy Institutional Investor Relations Manager Foresight
Jane Thompson Assistant Head Glasgow City Region Deal Glasgow City Council
Kevin Rush Director of Regional Economic Growth Glasgow City Region
Andrew McIntosh Director of Investment Greater Manchester Combined Authority
Paddy Dowdall Assistant Executive Director Greater Manchester Pension Fund
Andrew Hall Investment Manager Greater Manchester Pension Fund
Emma Garrett Investment Consultant and Actuary Hymans Robertson
Paul Potter Senior Investment Consultant Hymans Robertson
Peter Connolly Chief Executive igloo Regeneration
Robert Wood Investment Director igloo Regeneration
Sammir Lingawi Investment Manager igloo Regeneration
John Raisin Advisor Independent
Paul Convery Councillor and Pensions Sub Committee Chair Islington London Borough Council
David Jenkins Councillor Leeds City Council
Eleanor Bucks Chief Operations Officer Legal & General Capital
FULL NAME TITLE ORGANISATION
Shuen Chan Head of ESG, Real Assets Legal & General Investment Management
William Bourne Director Linchpin
Keith Bray Advisor Local Authority Pension Fund Forum (LAPPF)
Robert Holloway Pensions Secretary Local Government Association (LGA)
Jason Fletcher Chief Investment Officer London CIV
Ben Constable-Maxwell Head of Sustainable and Impact Investing M&G Investments
Alibhai Shamez
Managing Director and Head
of Community Housing
Man Group
Kate Brett
Principal and Head of the Responsible
Investment Team
Mercer
Jonathan Diggines Investment Committee Chair Mercia Asset Management
Darren Agombar Managing Director Mercia Asset Management
Pat Cleary Chair and Councillor of the Pension Committee
Merseyside Pension Fund
(administered by Wirral Council)
Owen Thorne Investment Manager Merseyside Pension Fund
Yvonne Gale CEO NEL Fund Managers
Alasdair Greig Director Northstar Ventures
Richard Hamilton-Grey Senior Director of Sustainability Nuveen
Abigail Dean Global Head of Strategic Insights Nuveen
Gordon Clark
Director, Smith School of Enterprise
and Environment
Oxford University
Mathieu Elshout Head of Sustainability and Impact Investing Patrizia AG
Janice Hayward Client Services Director Pensions Investment Research Consultants
Tessa Younger Head of Engagement Pensions Investment Research Consultants
Neil Sellstrom Client Services Manager Pensions Investment Research Consultants
Piet Klop Senior Advisor Responsible Investment PGGM
Edwin Whitehead Head of Responsible Investment Redington
Jill Davys Head of LGPS Redington
Simon Chisholm Chief Investment Officer Resonance
Charlotte Jacques Head of Sustainability Schroder Real Estate
George Graham Director South Yorkshire Pensions Authority
Mick Stowe Chair South Yorkshire Pensions Authority
Paul Clark Head of Land and Partnerships Stories
Richard McIndoe Director Strathclyde Pension Fund
Ian Jamison Head of Direct Investment Portfolio Strathclyde Pension Fund
Glyn Caron
Councillor and Wales Pension Partnership
Joint Governance Committee Chair
Torfaen County Borough Council
Miriam Adams Councillor Tower Hamlets London Borough Council
Jennifer Ockwell Partner Triple Point Investment Management
Lindsay Smart Head of Sustainability Triple Point Investment Management
Luba Nikulina Global Head of Research Willis Towers Watson
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
Note that these have not been analysed nor classified as PBII funds, rather
they are private funds investing in the PBII sectors with assets in the UK.
PRIVATE MARKET INVESTMENTS – CLEAN ENERGY
PRIVATE MARKET INVESTMENTS – HOUSING
PRIVATE MARKET INVESTMENTS – INFRASTRUCTURE
ANNEX 2 – LIST OF IDENTIFIED FUNDS WITH LGPS INVESTMENT
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
Ancala Renewables Clean energy Europe (including UK) Yes Yes
Aviva Investors PiP Solar PV Fund Clean energy UK Yes No
Capital Dynamics Clean Energy and
Infrastructure Fund
Clean energy Global (including UK) No Yes
Capital Dynamics Clean Energy and
Infrastructure Fund VIII
Clean energy UK Yes Yes
Cleantech Europe (Zouk) Clean energy Europe (including UK) Yes No
Environmental Capital Fund Clean energy UK Yes No
Environmental Technologies Fund Clean energy Europe (including UK) Yes Yes
Equitix Energy Efficiency Fund Clean energy UK Yes Yes
European Clean Energy Fund Clean energy Europe (including UK) Yes Yes
Foresight Environment Fund Clean energy UK Yes Yes
GIB Offshore Wind Fund Clean energy UK No Yes
Glennmont Clean Energy Fund Europe Clean energy Europe (including UK) No Yes
Greencoat Solar Clean energy UK Yes Yes
Hermes Environmental Innovation Clean energy UK No Yes
Hg Renewable Power Partners Clean energy Europe (including UK) No Yes
Impax New Energy Fund Clean energy Europe (including UK) Yes Yes
Iona Environmental Infrastructure Fund Clean energy UK No Yes
Macquarie GIG Renewable Energy Fund Clean energy Global (including UK) Yes Yes
Nottinghamshire Community Energy Clean Energy UK Local Yes Yes
NTR Renewable Energy Income Fund Clean energy Europe (including UK) Yes Yes
NTR Wind 1 Fund Clean energy Europe (including UK) No Yes
Quinbrook Low Carbon Power Fund Clean energy Global (including UK) Yes Yes
Resonance British Wind Energy Income Clean energy UK No Yes
Temporis Operational Renewable Energy
Strategy Fund
Clean energy Europe (including UK) No Yes
Zouk Renewable Energy & Environmental
Infrastructure Fund II (REEIF II)
Clean energy Europe (including UK) Yes Yes
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
API Residential Housing UK Yes Yes
Catella European Student Housing Fund Housing Europe (including UK) Yes Yes
CBRE UK Affordable Housing Fund Housing UK Yes Yes
Curlew Student Trust Housing UK No No
Gresham House British Strategic
Investment Fund Housing
Housing UK Yes No
Hearthstone Residential Fund Housing UK Yes Yes
Horizon Long Lease Housing LP Housing UK Yes Yes
Horizon Secure Residential Leasing LP Housing UK Yes Yes
Housing Fund For Scotland Housing UK Regional Yes Yes
Invesco Real Estate - UK Residential Fund Housing UK Yes Yes
M&G UK Residential Property Fund Housing UK Yes No
Metro Property Unit Trust Housing UK No Yes
Octopus Healthcare Fund Housing UK Yes Yes
Schroders Residential Land Partnership Housing UK No Yes
Social Supported Housing Fund (Soho) Housing UK Yes No
The Careplaces Limited Partnership Housing UK Yes No
UK Retirement Living Fund Housing UK Yes Yes
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
Aberdeen UK Infrastructure Partners Infrastructure UK Yes Yes
Alinda Infrastructure Fund III Infrastructure Global (including UK) Yes Yes
Amp Capital Infrastructure Debt Fund III Infrastructure Global (including UK) Yes Yes
Ancala UK Infrastructure Platform Infrastructure Europe (including UK) Yes Yes
Ancala Utilities Infrastructure Europe (including UK) Yes Yes
Antin Infrastructure Partners Infrastructure Europe (including UK) No Yes
Arcus European Infrastructure Infrastructure Europe (including UK) Yes Yes
Aviva Investors Realm Infrastructure Fund Infrastructure UK Yes Yes
Barclays Integrated Infrastructure Fund
(BIIF)
Infrastructure Europe (including UK) Yes Yes
Basalt Infrastructure Partners Infrastructure Global (including UK) Yes Yes
Capital Dynamics Red Rose Intrastructure Infrastructure Global (including UK) Yes No
Cobalt Project Investments Infrastructure UK Yes Yes
Dalmore Capital Fund Infrastructure UK Yes Yes
Dalmore Capital Fund 3 Infrastructure UK Yes Yes
Dalmore Infrastructure Investments Infrastructure UK Regional Yes No
DIF Infrastructure V Infrastructure Global (including UK) No Yes
Equitix Fund Infrastructure Europe (including UK) Yes No
First State European Diversified
Infrastructure Fund
Infrastructure Europe (including UK) Yes Yes
Foresight Energy Infrastructure Partners Infrastructure Europe (including UK) Yes Yes
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
PRIVATE MARKET INVESTMENTS – INFRASTRUCTURE (CONTINUED) PRIVATE MARKET INVESTMENTS – SME FINANCE (CONTINUED)
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
Glil Infrastructure Infrastructure UK Yes Yes
Global Infrastructure Partners Infrastructure Global (including UK) Yes No
Gresham House British Strategic
Investment Fund
Infrastructure UK Yes Yes
Henderson PFI Secondary I Infrastructure UK No Yes
Hermes Infrastructure Fund Infrastructure Europe (including UK) Yes Yes
iCon Infrastructure Partners Infrastructure Global (including UK) Yes Yes
Ifm Global Infrastructure UK Infrastructure Global (including UK) Yes Yes
Infracapital Greenfield Partners Infrastructure Europe (including UK) Yes Yes
Infracapital Partners Infrastructure Europe (including UK) Yes Yes
Infrared Infrastructure Yield Fund Infrastructure Global (including UK) Yes Yes
Innisfree PFI Continuation Fund Infrastructure Europe (including UK) Yes Yes
Innisfree PFI Secondary Fund Infrastructure Europe (including UK) Yes Yes
ISQ Global Infrastructure Fund Infrastructure Global (including UK) Yes Yes
JP Morgan Infrastructure Investments Fund Infrastructure Global (including UK) Yes Yes
Macquarie European Infrastructure Fund Infrastructure Europe (including UK) Yes Yes
Medicx Healthfund II Infrastructure UK No Yes
Meridiam Infrastructure Sca Infrastructure Global (including UK) Yes Yes
Newcore Strategic Situations IV Infrastructure UK Yes Yes
North Haven Infrastructure Partners III Infrastructure Global (including UK) No No
Pantheon Infrastructure Fund Infrastructure Global (including UK) Yes Yes
Pensions Infrastructure Limited Infrastructure UK Yes Yes
Pensions Infrastructure Platform Infrastructure UK Yes Yes
PPP Equity PiP LP Infrastructure UK Yes Yes
Semperian PPP Investment Partners Infrastructure Europe (including UK) No Yes
SL Capital Infrastructure Fund I Infrastructure Europe (including UK) No Yes
SLCI Rail Co-Invest LP Infrastructure UK Yes Yes
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
Catapult Growth Fund Private Equity and Venture Capital UK No Yes
Chandos Fund Private Equity and Venture Capital UK No Yes
East Midlands Regional Venture Capital
Fund (Catapult)
Private Equity and Venture Capital UK Regional Yes Yes
ECI Ventures Private Equity and Venture Capital UK Yes Yes
Enterprise Ventures Fund Private Equity and Venture Capital UK Yes Yes
Epidarex Capital Private Equity and Venture Capital Global (including UK) Yes No
Foresight Nottingham Fund Private Equity and Venture Capital UK Local Yes Yes
Foresight Regional Investment Fund Private Equity and Venture Capital UK Regional Yes Yes
Impact Ventures UK Private Equity and Venture Capital UK Yes No
KKR Evergreen Co-Invest II Private Equity and Venture Capital Global (including UK) Yes Yes
London Enterprise Venture Fund Private Equity and Venture Capital UK Regional Yes Yes
Ludgate Environmental Fund Private Equity and Venture Capital Europe (including UK) Yes Yes
North West Equity Fund LP Private Equity and Venture Capital UK Regional Yes Yes
Northedge Capital Private Equity and Venture Capital UK Regional No Yes
Novalpina Capital Partners Private Equity and Venture Capital Europe (including UK) No Yes
Palatine Private Equity Fund Private Equity and Venture Capital UK No Yes
Panoramic Enterprise Capital Private Equity and Venture Capital UK Yes Yes
Panoramic Growth Fund Private Equity and Venture Capital UK Yes Yes
Pentech Fund Private Equity and Venture Capital Global (including UK) No Yes
Risingstars Growth Fund Private Equity and Venture Capital UK Yes Yes
Scottish Equity Partners Private Equity and Venture Capital Europe (including UK) Yes Yes
South East Growth Fund Private Equity and Venture Capital UK Regional No Yes
South West Regional Venture Capital Fund Private Equity and Venture Capital UK Regional Yes Yes
South West Ventures Fund Private Equity and Venture Capital UK Regional Yes Yes
Terra Firma Special Opportunities Fund Private Equity and Venture Capital UK No Yes
UK High Technology Fund Private Equity and Venture Capital UK Yes Yes
Waterland Private Equity Fund Private Equity and Venture Capital Europe (including UK) No Yes
Westbridge Capital Fund II Private Equity and Venture Capital UK Yes Yes
YFM Equity Partners Private Equity and Venture Capital UK No Yes
Yorkshire & Humber Equity Fund Private Equity and Venture Capital UK Regional Yes Yes
Beechbrook UK SME Credit SME Debt Financing UK No Yes
Boost And Co Industrial Lending Fund SME Debt Financing UK No Yes
Finance Birmingham Ltd SME Debt Financing UK Local Yes Yes
Frontier Development Capital SME Debt Financing UK No Yes
Funding Circle UK SME Direct Lending Fund SME Debt Financing UK Yes Yes
M&G UK Companies Financing Fund SME Debt Financing UK No Yes
Mobeus Equity Partners SME Debt Financing UK Yes Yes
Muzinich UK Private Debt Fund SME Debt Financing UK Yes Yes
Pemberton UK Mid-Market Debt Fund SME Debt Financing UK Yes Yes
Scottish Loan Fund SME Debt Financing UK Regional No Yes
Tosca Debt Capital Fund II SME Debt Financing UK Regional Yes No
PRIVATE MARKET INVESTMENTS – SME FINANCE
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
Abingworth Bioventures Private Equity and Venture Capital Global (including UK) Yes Yes
August Equity Partners Private Equity and Venture Capital UK Yes Yes
Baird Capital Partners Europe Fund Private Equity and Venture Capital Europe (including UK) Yes Yes
Bridges Community Development
Venture Fund
Private Equity and Venture Capital UK No Yes
Bridges Evergreen Capital Private Equity and Venture Capital UK No Yes
Bridges Social Impact Bond Fund Private Equity and Venture Capital UK No No
Bridges Sustainable Growth Fund Private Equity and Venture Capital UK Yes Yes
Capital Dynamics LGPS Collective
Private Equity
Private Equity and Venture Capital Global (including UK) Yes Yes
Capital Dynamics Merseyside Private Equity Private Equity and Venture Capital Global (including UK) Yes Yes
Capital Dynamics UK High Tech Fund No 1 LP Private Equity and Venture Capital Global (including UK) Yes Yes
PRIVATE MARKET INVESTMENTS – URBAN REGENERATION
PUBLIC MARKET INVESTMENTS
PUBLIC MARKET OPERATORS
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
Bridges Property Alternatives Fund Urban Regeneration UK No Yes
igloo Regeneration Urban Regeneration UK Yes Yes
St Bride's Key Cities Partnership Urban Regeneration UK No Yes
St Bride's White Rose Partnership Urban Regeneration UK Regional Yes Yes
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
Bluefield Solar Income Fund Clean energy Europe (including UK) Yes Yes
Foresight Solar Fund Clean energy UK Yes Yes
Greencoat UK Wind Clean energy UK Yes Yes
Gresham House Energy Storage Fund PLC Clean energy UK Yes Yes
JLEN Environ Assets Group Clean energy UK Yes Yes
Nextenergy Solar Fund Clean energy UK No Yes
Octopus Renewables Infrastructure Clean energy Europe (including UK) No Yes
The Renewables Infrastructure Group Clean energy Europe (including UK) Yes Yes
Civitas Social Housing PLC Housing UK No Yes
Dukemount Capital PLC Housing UK No Yes
Empiric Student Property PLC Housing UK Yes Yes
GCP Student Living PLC Housing UK No Yes
KCR Residential REIT PLC Housing UK Yes Yes
McCarthy & Stone PLC Housing UK Yes Yes
The PRS REIT PLC Housing UK No Yes
Residential Secure Income PLC (Resi) Housing UK Yes Yes
Sigma Capital Group Housing UK Yes Yes
Triple Point Social Housing Housing UK No Yes
The Unite Group PLC Housing UK Yes Yes
Assura PLC Infrastructure UK Yes Yes
GCP Infrastructure Investments Limited Infrastructure UK Yes Yes
Impact Healthcare REIT Infrastructure UK Yes Yes
Infrastrata PLC Infrastructure Global (including UK) No Yes
International Public Partnerships Limited Infrastructure Global (including UK) Yes Yes
Nexus Infrastructure PLC Infrastructure UK Yes Yes
Primary Health Properties Infrastructure Europe (including UK) Yes Yes
Renew Holdings PLC Infrastructure UK No Yes
Sequoia Economic Infrastructure
Income Fund Limited
Infrastructure Global (including UK) Yes Yes
Target Healthcare REIT PLC Infrastructure UK Yes No
Albion Development VCT PLC SME Finance UK No Yes
Augmentum Fintech SME Finance Europe (including UK) Yes Yes
British Smaller Companies VCT PLC SME Finance UK Yes Yes
Draper Esprit VCT PLC SME Finance UK Yes No
Oxford Technology Venture Capital Trust PLC SME Finance UK Regional Yes Yes
Harworth Group PLC Urban development UK Regional Yes Yes
NAME PBII PILLAR GEOGRAPHY
PRESENT IN
LGPS
DATA
PRESENT IN
LGPS
DATA
Good Energy Group PLC Clean Energy UK Yes Yes
Barratt Developments PLC Housing UK Yes Yes
The Berkeley Group Holdings Housing UK Yes Yes
Grainger PLC Housing UK No Yes
BT Group PLC Infrastructure UK Yes Yes
Firstgroup PLC Infrastructure UK Yes Yes
Galliford Try Infrastructure UK Yes Yes
Go-Ahead Group PLC Infrastructure UK Yes Yes
Jersey Electricity PLC Infrastructure UK Yes No
KCOM Group Infrastructure UK Yes Yes
National Express Group PLC Infrastructure UK No Yes
National Grid PLC Infrastructure UK Yes Yes
Pennon Group PLC Infrastructure UK No Yes
Rotala PLC Infrastructure UK Yes Yes
Severn Trent PLC Infrastructure UK Yes Yes
Simec Atlantis Energy Infrastructure UK Yes Yes
SSE PLC Infrastructure UK Yes Yes
Stagecoach Group PLC Infrastructure UK Yes Yes
Talk Talk Group Infrastructure UK Yes Yes
United Utilities Group PLC Infrastructure UK Yes Yes
Vodafone Group PLC Infrastructure UK No Yes
Balfour Beatty Urban development UK Yes Yes
Kier Group Urban development UK Yes Yes
Morgan Sindall Group Urban development UK Yes Yes
Trafalgar Property Group PLC Urban development UK Yes Yes
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
ANNEX 3 – EXAMPLE BASIC THEORIES OF CHANGE
THEORY OF CHANGE – HOUSING
ACTIVITIES OUTPUTS
Members contribute to pension
LGPSFund Manager
Partner with
Development
/Housing
Manager
LGPS decides to invest in
Private Market Investments
LGPS invests in a fund
Improved Wellbeing
Contribution to local inclusive
and sustainable development
Reduced Carbon
Footprint
Increase in the number
of quality jobs (direct
and indirect)
Affordable Rent
and Market Rent
Increased supply
of housing
Construction Jobs
Higher Quality
Homes
Better energy
efficiency
Forward funding
of new affordable
homes
Aquire existing
homes and
renovate them
OUTCOMES IMPACT
THEORY OF CHANGE – REGENERATION
ACTIVITIES OUTPUTS
Repurposed site
Increase in the number
of users of site
Members contribute to pension
LGPSFund Manager
Identify
site
LGPS decides to invest in
Private Market Investments
LGPS invests in a fund
Site is fully utilised
Reduced carbon footprint
Reduction in derelict/
unused space
Increase in the number
of quality jobs (direct
and indirect)
Contribution to local inclusive
and sustainable development
Improved energy
efficiency
Follow-up investment
in the same area
Construction jobs
Bespoke Outcomes
based on the scheme
Bespoke Outputs
based on the scheme
Provide
development
capital
Form partnership
to improve site
OUTCOMES IMPACT
THEORY OF CHANGE – INFRASTRUCTURE
ACTIVITIES OUTPUTS
Members contribute to pension
LGPSFund Manager
Identify
infrastructure
opportunities
LGPS decides to invest in
Private Market Investments
LGPS invests in a fund
Increase in local and
regional connectivity,
productivity and
competitiveness
Contribution to local inclusive
and sustainable development
Better transport links
Greater digital
connectivity
Installation of High
Speed Internet
Improved utilities
Better public service
provision
Increased provision and
efficiency of utilities
Increase in the number
of quality jobs
(direct and indirect)
Increased social
infrastructure
Construction jobs
Provide
development
capital
Invest in existing
operations
OUTCOMES IMPACT
THEORY OF CHANGE – CLEAN ENERGY
ACTIVITIES OUTPUTS
Members contribute to pension
LGPSFund Manager
Identify
clean energy
investment
opportunities
LGPS decides to invest in
Private Market Investments
LGPS invests in a fund
Lower carbon
intensity of grid
Contribution to local inclusive
and sustainable development
Reduced high carbon
energy generation
Reduction in emissions
Reduction in use
of fossil fuels
Reduced
carbon footprint
Higher energy
efficiency
Invest into
renewable energy
systems
Invest into
low carbon
infrastructure
(e.g. transport)
Invest into
energy efficiency
measures
OUTCOMES IMPACT
THEORY OF CHANGE – SME FINANCE
ACTIVITIES OUTPUTS
Members contribute to pension
LGPSFund Manager
Identify SME
investment
opportunities
Design funds
with focus
on specific
geographical
areas and
sectors
LGPS decides to invest in
Private Market Investments
LGPS invests in a fund
Increase in the number
of quality jobs (direct
and indirect)
Contribution to local inclusive
and sustainable development
SME growth
Increase in start-up and
survival rates of SMEs
Increased number
of SMEs
Bespoke Outcomes
based on the SME
business model
Bespoke Outputs
based on the SME
business model
Provide equity
investment
Provide debt
finance
Support
management
OUTCOMES IMPACT
SCALING UP INSTITUTIONAL INVESTMENT FOR PLACE-BASED IMPACT – THE WHITE PAPER 2021
ABOUT THE CO-AUTHORS
SARAH FORSTER
CEO AND CO-FOUNDER,
THE GOOD ECONOMY
Sarah Forster is CEO and
Co-Founder of The Good
Economy. She has worked
at the forefront of finance
for positive impact for more
than 25 years, working in
the fields of sustainable
economic development,
development finance and
impact measurement and
management.
Sarah co-founded The Good
Economy in 2015 to enhance
the role of business and
finance in inclusive and
sustainable development.
She acts as a trusted advisor
to clients across the private,
public and social sectors.
Other recent work includes
directing the development of
the Sustainability Reporting
Standard for Social Housing
and co-authoring an
influential roadmap for the
Urban Land Institute to help
global real estate capture and
enhance its social value.
Previously, Sarah held
senior positions at Big Issue
Invest, the New Economics
Foundation and the World
Bank.
MARK HEPWORTH
RESEARCH AND POLICY
DIRECTOR AND CO-FOUNDER,
THE GOOD ECONOMY
Mark Hepworth is The Good
Economy’s research and
policy director, leading
its work on inclusive and
sustainable development.
Mark is a multidisciplinary
economist whose
international career spans
academia, public policy and
business consultancy.
His focus at The Good
Economy is on business-led
inclusive growth, Place-Based
Impact Investing and the UN
Sustainable Development
Goals as future drivers of
business model innovation
and transformative policy.
Mark has deep knowledge
of the UK economic
development landscape
through his research at the
Universities of Newcastle
and London and policy
consultancy at the Local
Futures Group, which he co-
founded in 1997 (now part of
Grant Thornton).
PAUL STANWORTH
PRINCIPAL ADVISOR,
THE GOOD ECONOMY
Paul Stanworth is currently
CIO of 777 Asset Management
and a former CEO of Legal &
General Capital, which he set
up to pioneer the drive for
socially useful investments by
large institutions.
Prior to this, he was Managing
Director with Merrill Lynch
and Deutsche Bank providing
derivative and structured
solutions for insurers and
also previously held executive
positions at Royal Bank of
Scotland and Prudential (UK).
He has held positions across
asset management, finance
and insurance.
As a principal associate at
The Good Economy, Paul
has co-led the PBII research
programme alongside Sarah
Forster and Mark Hepworth.
NOTES
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