The UK Government’s 2025 reforms to the Local Government Pension Scheme (“LGPS”) mark a decisive turning point. By March 2026, all assets are expected to be managed within FCA-authorised pools, and every administering authority ("AA") will be required to set out and report on its investment strategy, including local investing (or place-based investing).
This is not a minor adjustment. With around £392 billion in assets and 6.7 million members across England and Wales, the LGPS is in aggregate the largest funded pension scheme in the UK. Government projections suggest assets could grow to around £1 trillion by 2040. The core purpose is unchanged – to pay pensions as they fall due – but the reforms are designed to use LGPS scale more effectively, improving efficiency and governance while putting long-term capital to work in productive UK assets.
Illustrative modelling in the Government’s Pensions Investment Review (2025) highlights the potential impact of scale: with LGPS assets projected at around £550 billion by 2030, a 5% local allocation could mean more than £27 billion directed into UK projects. Even a 1% shift would free up over £5 billion – enough to materially shape critical priorities such as housing delivery, energy transitions and business growth. That level of capital is substantial in its own right, and, as an anchor commitment, could attract further private investment.
Local investment as part of core investment policy
The 2025 reforms make local investment a formal part of LGPS strategy. Administering authorities will be required to:
- Set a defined target range for local and regional allocations in their Investment Strategy Statement.
- Engage with strategic authorities such as combined authorities, mayoralties or Welsh CJCs, and reflect local growth plans.
- Rely on their pool to conduct due diligence and make the final investment decisions.
- Report annually on local allocations and impacts, based on disclosures provided by their pool.
This confirms what many funds already do, while establishing clear expectations and places pools at the heart of delivery.
Government has kept the definition of “local and regional” deliberately broad, allowing funds and pools to interpret it in line with their geographies and growth strategies. This flexibility is welcome but creates a practical challenge: compliance and reporting will depend on how each AA and pool evidences its definition. Without some convergence, interpretations may diverge significantly, risking inconsistency across the system. In practice, the investable scope is wide – from housing and regeneration through to local energy systems, digital and transport infrastructure, and SME finance – but disciplined articulation of “what counts” will be as important as the allocation itself.
The government also reaffirmed that the fiduciary objective remains unchanged: local allocations are expected only where they satisfy appropriate risk/return standards and meet institutional investment criteria.
For LGPS investors, the rationale for local allocations is not purely policy driven. Many of the sectors in scope are already established within institutional asset classes, with benchmark and performance data that stand alongside global private markets. Core housing or infrastructure can provide long-dated, inflation-linked cashflows that support liability matching, while regeneration and SME strategies offer higher-return, higher-risk opportunities more akin to private equity. Importantly, UK-focused investments can also help diversify global exposures, reduce currency risk, and align assets more closely with member liabilities. The key is structuring and underwriting these opportunities with the same rigour applied to global alternatives, ensuring they compete on risk-adjusted returns rather than policy preference.
From policy to portfolio: what good looks like
Moving from policy to implementation will require a sharpened but flexible approach to portfolio construction, applying the same standards of investment rigour that LGPS investors demand in global private markets – discipline that is essential to meeting fiduciary duties and securing pensions. Key aspects include:
- Pipeline origination and shaping: Local investment opportunities rarely arrive in fully investable form. Pools and administering authorities will need to work with combined authorities, Homes England, the National Wealth Fund, and local delivery partners to shape initiatives into projects with institutional-grade risk/return characteristics. Credible pipelines demand early collaboration, genuine local buy-in, and commitment from delivery partners – the hallmarks of bankable projects.
- Structuring investable vehicles: Deployment depends on product design as well. Pooled vehicles such as UK opportunities funds, regional sleeves, or evergreen semi-liquid LTAFs can provide scalable access while giving individual funds flexibility to tilt toward their own geographies. Co-investments, joint ventures and sidecar structures can deepen exposure to specific local opportunities without undermining pooled efficiency – balancing standardisation with local priorities will be one of the defining tests of the reforms.
- Execution capacity at pool level: Deployment will hinge on pools’ ability to evaluate projects across asset classes, underwrite them with specialist expertise, and bring them into cost-efficient vehicles. This remains a material execution risk: many pools are still building deep private markets capabilities, and their ability to scale specialist underwriting will be decisive in determining how much of the policy ambition translates into actual deployment.
- Data and monitoring frameworks: To ensure accountability and build confidence, deployment must be underpinned by consistent reporting on both financial and real-economy outcomes. A common framework, covering indicators such as homes delivered, renewable capacity installed, SME lending volumes and jobs supported, will avoid fragmentation and allow local allocations to be compared on a like-for-like basis.
- Rigorous investment standards: Across all of the above, deals must be underpinned by robust underwriting, appropriate risk premia, and disciplined structuring. Local allocations will only be credible if they meet institutional thresholds for risk-adjusted return and execution quality.
Conclusion
The 2025 reforms have given the LGPS a unique platform. With its scale, even modest local allocations can transform the prospects of critical assets and services across the UK. The real test will not be policy compliance but investment delivery: ensuring allocations meet fiduciary standards and contribute positively to portfolio outcomes, while also generating visible impacts on the ground – homes built, jobs supported, businesses financed, infrastructure upgraded, and energy capacity expanded.
If funds and pools can achieve that, the LGPS will not only secure pensions but also help create stronger, more resilient communities – with the services, infrastructure and opportunities that members will rely on in retirement. Done well, it is a genuine win–win: pensions protected, communities renewed, and a global example of what place-based investing can achieve.
Turning this vision into reality will demand technical expertise, disciplined execution and close collaboration. This is where experienced advisers can add real value – supporting administering authorities and pools to design strategies, develop investable products and put robust governance frameworks in place.
About Apex Investment Advisory
Based in London, our independent investment advisory team with c.$125bn in assets under advisory has deep knowledge of investments and alternatives and global reach as part of the Apex Group.
Our tailored services include independent investment advice, strategy reviews and portfolio construction advice, manager research and selection, investment and operational due diligence, as well as other bespoke analytical projects.
Formed over 35 years ago, we have a long track record and deep experience in alternatives and private markets, working collaboratively with institutional investors such as public sector pensions, sovereigns, corporates, and family offices to provide tailored services for their portfolios and private market investments.
Having worked through multiple cycles, with deep knowledge of the market, we are well placed to assist investors in assessing their portfolios and helping them manage the current changes in the investment landscape.
To further explore how we can assist in meeting your objectives, please contact us.
References:
HM Government (2025) Pensions investment review: final report. Available at: https://www.gov.uk/government/publications/pensions-investment-review-final-report
LGPS Scheme Advisory Board (SAB) (2025) Annual report 2024. Available at: https://lgpsboard.org/index.php/schemedata/scheme-annual-report
