The “Local” Conundrum: How Fund Managers Can Navigate the New Local Investing Mandate
Executive Summary
The UK government’s Fit for the Future reforms push LGPS administering authorities to set target allocations for “local” investment, but “local” isn’t defined just by postcode. Fund managers need to align with broader economic geographies, apply place-based pillars, and balance scale with regional relevance to win mandates.
What is the New LGPS “Local Investing” Requirement?
For UK fund managers looking to raise capital from the Local Government Pension Scheme (LGPS), the landscape has shifted. The government’s Fit for the Future consultation has introduced a requirement for Administering Authorities (AAs) to set target allocations for “local” investment.
But for asset managers operating national or pan-regional strategies, this raises a critical question: What actually counts as “local”?
As we outline in our new White Paper, Scaling-Up Local Investing for Place-Based Impact, the answer is not as simple as drawing a line around a county. For fund managers, understanding the nuance of this definition is the key to unlocking allocations in this new cycle.
The Policy Definition: Broader Than You Think
The emerging pension reform policy definition of “local” is actually quite flexible for LGPS Pools. The government proposes that “local” covers investments that benefit the area of the specific pension fund OR the broader region of their investment Pool.
This is a crucial distinction. It means a “local” investment for a fund in the Northern Pool isn’t limited to just one city; it could encompass the entire North West economic region. Or in the case of Local Pensions Partnership, an area as diverse and distant as Lancashire and Cornwall.
Another dimension to consider is that because the local investing agenda is designed to help Strategic Authorities to deliver their Local Growth Plans, the geography of the devolved authorities also needs to be considered.
The geography of the Local Government Pension Scheme in England and Wales vs Map of Proposed Devolution
However, to win mandates, fund managers need to go beyond basic geography. Based on the framework we developed with seven LGPS Pools, here is how you should frame your “local” strategy:
1. Think in Economic Geographies, Not Just Postcodes
The LGPS Pools do not always align perfectly with administrative boundaries. Our White Paper recommends a context-specific approach.
- For Managers: Don’t pitch “local” as a rigid constraint. Pitch it as economic coherence. Show how your fund taps into regional competitive strengths – whether that is the tech clusters in the Golden Triangle or green energy infrastructure in the North East. The definition of local is becoming a function of institutional context, not just a map.
2. Align with the “Pillars” of Place
To be credible, your investment needs to look like “local growth” to a policymaker. We advise Pools to align their strategies with Local Growth Plans.
- For Managers: Your pitch should clearly map to the sectors driving these plans. Our PBII (Place-Based Impact Investing) Pillar Model identifies the key asset classes that resonate: Housing, SME Finance, Clean Energy, Infrastructure, Regeneration and Natural Capital. If your fund operates in these sectors, you are already speaking the language of local growth.
The Good Economy’s PBII pillar model – now recognised across the LGPS and wider market – provides a common language for aligning these sectors with local development priorities. Fund managers who understand and adopt this framework will be better positioned to offer:
- Scalable mandates where efficient
- Smaller catalytic strategies where impact is highest
- Investor-ready reporting that maps local outcomes to pool-level impact frameworks
3. Solve the Scale vs. Impact Problem
There is a tension between the scale required by Pools (who need efficiency) and the granularity of local projects.
- For Managers: You are the bridge. The LGPS needs “efficient scalable delivery mechanisms” that can still hit smaller, local targets.
- If you run a national fund, consider creating “regional sleeves” or “sidecar vehicles” that allow a Pool to deploy capital into their specific region while benefiting from your national platform’s diversification. See the case studies annex to the white paper for real world examples.
- If you run a specialist regional fund (e.g., SME finance in the Midlands), emphasise your “boots on the ground” origination capability, which is difficult for Pools to replicate in-house11.
What is the Opportunity for Fund Managers?
The opportunity for fund managers given the LGPS local investing reforms is significant. The demand is real as the Local Government Pension Scheme industry is in the midst of designing and launching local investing strategies.
At The Good Economy, we help fund managers navigate the new world of LGPS local investing and position themselves within the ecosystem. The “local” mandate is not a barrier to entry – it’s an opportunity for managers who can articulate their contribution to the real economy.
Read our White Paper for the complete strategic framework.
