Charles Stanley Pan Asset has offered its views on proposals for reform of the Department for Communities and Local Government’s Local Government Pension Scheme (LGPS).

Bob Campion, head of institutional business at Charles Stanley Pan Asset.

The London-based investment adviser, which specialises in building portfolios using low cost index-tracking funds such as exchange-traded funds (ETFs), provided strong support to recommendations to adopt a passive rather than active investment management approach across all liquid asset classes.

The firm also supported plans to establish a more robust governance process and outlined how the reforms could enable a more flexible approach to asset allocation.

The comments were made in a detailed response to the consultation which closed on Friday July 11.

Bob Campion, head of institutional business at Charles Stanley Pan Asset, said: “Taking an index-tracking investment approach should be a win-win for local government pension funds. Individual local authority schemes can do this immediately through existing products in the market in order to respond to the latest challenge to get the costs of investment management down. Later, councils who want to work together can consider setting out large collective funds themselves that can do the tracking. Either way, during a period of low returns on cash, bonds and many other assets, it is all the more important to keep the costs of management down and index-tracking achieves this aim.”

Charles Stanley Pan Asset has been investing on behalf of private sector pension schemes using an index-tracking approach to all liquid asset classes since 2009. Its consultation response sets out the steps which Pan Asset believes should lead to significant cost savings and improved investment performance for the LGPS. This includes enabling a dynamic approach to asset allocation using low cost index-tracking funds – one that can be scheme specific or collective.

Campion added: “We have discovered through our own research that index-tracking not only costs less, but performs better. By working with experts, the LGPS can harness the power of passive portfolios and also take a more dynamic approach to asset allocation – one that has already been adopted by many pension schemes in the private sector.”

Charles Stanley Pan Asset, which was formed following Charles Stanley’s acquisition of Evercore Pan Asset in 2013, recently celebrated the five-year anniversary of its flagship suite of ETF model portfolios, the PanDynamic model portfolios. At the time of the anniversary, each of the original portfolios – the PanDefensive, PanBalanced, PanGrowth and PanAggressive portfolios – had posted solid risk-adjusted performance numbers.