At the end of October, LGPS Central – the pension pool for local authorities in the Midlands and one of England’s largest – reached a significant milestone when it for the first time surpassed £6bn in total private markets commitments from its eight partner funds, bringing the pool’s private market assets to over a sixth of its total assets of £30bn.
“Over the last decade, there’s been a significant shift towards private markets,” says the pool’s head of private markets Nadeem Hussain.
“The advantages are clear: better returns, direct exposure to companies, and the ability to structure portfolios in ways that align with specific goals, such as net-zero commitments or climate-related impact investments.”
Of the total £2.9 billion deployed to private markets to date, the pool now directly manages 13 co-investments with general partner private equity firms.
So far, £522.1m has already distributed back to partner funds, equivalent to 8.7% of overall commitments and 17.8% of deployed capital.
Around a quarter of LGPS Central’s invested capital in private markets is in UK investments.
“The confidence and enhanced collaboration with partner funds has allowed us to accelerate the pace of deployment,” says Hussain.
“The next 12 months will be pivotal, with a continued focus on deploying capital across high-growth opportunities in areas such as infrastructure, renewable energy and growth-stage private equity as well as deploying our new private credit vintages.”.
Among private markets asset classes, private equity, infrastructure and property have all seen notable growth within the pool’s portfolio over six years since the pool was created in 2018 but, most recently, private credit has expanded the fastest—a reflection of changing dynamics in global lending.
“In the past, banks dominated institutional lending,” says Hussain. “But stricter capital requirements have curtailed that role, allowing private credit institutions to step in. This shift has been significant for us, and we’ve increased our allocations accordingly.”
Diversity in Investment Approaches
The pool operates primarily as a limited partner but also engages in direct investments and co-investments.
“We’ve invested in a wide range of businesses,” Hussain reveals. “For example, we’ve supported a veterinary care company, an eye-care business with operations across Europe, and a US-based technology firm. On the infrastructure side, we’ve backed projects like the extension of a hospital and a car park in Derby.”
This multi-faceted approach ensures a balanced portfolio, minimising risk while maximising returns. Each sector and geography is carefully assessed to avoid overexposure, ensuring resilience against market volatility.
“Take infrastructure,” Hussain elaborates. “We have core assets that provide stable, long-term yields—like operational wind farms—and more opportunistic ventures that involve development risks but promise higher returns. This mix allows us to align with varying risk appetites and economic conditions.”
Regional and Local Commitments
While LGPS Central’s investments span the globe, there is an increasing focus on supporting local economies. “We’ve had many conversations recently about strategies to enhance exposure to businesses within the LGPS Central footprint,” Hussain says. “Some of this happens by accident, but some is by design.”
A notable example is a hospital extension in Derby, which LGPS Central financed through private credit. Although there isn’t a government mandate requiring regional investments, Hussain acknowledges growing interest from stakeholders in supporting local businesses and infrastructure.
“We’re exploring solutions that would provide direct exposure to businesses within the UK and specifically within our central region,” he adds.
Private markets are often perceived as riskier compared to public markets, but they also offer the potential for higher returns. Hussain underscores the importance of strategic planning in mitigating these risks.
“We set specific limits for each sector and geography,” he explains. “This diversification ensures that if one sector underperforms—say, transport during COVID-19—our overall portfolio remains stable.”
He also highlights the strong performance of LGPS Central’s earlier private equity vintages. “These funds have delivered returns that justify the additional risks taken. While newer strategies are still deploying capital and building their portfolios, we are confident they will meet their objectives.”
Government Encouragement and Market Trends
The UK government has recently called for increased investment in private markets, particularly in domestic infrastructure and private equity. While this aligns with LGPS Central’s existing strategy, Hussain clarifies a common misconception.
“There’s never been a cap set by regulators like the FCA on how much we can invest in private markets,” he states. “Each local authority pension fund determines its strategic allocation. What we’ve seen is a steady increase in private market commitments over the years, reflecting broader market trends.”
One of LGPS Central’s defining characteristics is its in-house approach to investment. Unlike many other pension pools, the firm relies on internal expertise to source, evaluate, and manage opportunities.
“We don’t have discretionary or advisory mandates with external partners,” Hussain says. “Our team has the expertise to conduct due diligence, analyse opportunities, and make informed decisions independently. This gives us greater control and ensures alignment with our objectives.”
This capability extends to co-investments and direct investments, areas where LGPS Central has established a strong track record. “For instance, we’ve acquired retail parks and industrial properties in Greater London, all through direct investments,” he notes.
As LGPS Central continues to expand its private market portfolio, Hussain anticipates sustained growth in the coming years. “We’ve seen accelerated growth recently, with commitments quickly rising from £5 billion to £6 billion,” he observes. “This trend will likely continue, particularly as earlier vintages mature and capital gets recycled.”
Balancing Act
Critics often question the risks associated with private markets, but Hussain emphasizes the importance of transparency. “While we don’t publish returns on our website, they are available in joint committee slides, which are public documents,” he explains. “These demonstrate the strong performance of our funds, providing evidence of the value we bring to our partner funds.”
Ultimately, LGPS Central’s private market strategy is a balancing act—combining risk, return, diversification, and social impact. Hussain’s leadership has been instrumental in navigating this complex landscape, ensuring that the firm remains at the cutting edge of investment innovation.
“Our goal is to deliver consistent, high-quality returns while supporting broader economic objectives,” he concludes. “Private markets offer unique opportunities to achieve this, and we’re committed to leveraging them for the benefit of our partner funds and the communities they serve.”
In an era where financial strategies are as dynamic as the markets themselves, LGPS Central’s approach offers a compelling blueprint for the future of pension fund management.
