Aviva PLC (LSE:AV.), Legal & General Group PLC (LSE:LGEN), M&G PLC (LSE:MNG) and other pension fund managers have agreed a new commitment with the government to allocate 10% of their workplace pension investments into “private assets” by 2030.
The 17 signatories of the new ‘Mansion House accord’ have agreed to invest half of that, ie 5%, in UK businesses, property and major infrastructure projects.
It is an increase on the previous Mansion House compact of 2023 that agreed an allocation of 5% of funds to private assets.
Chancellor of the Exchequer Rachel Reeves said: “I welcome this bold step by some of our biggest pension funds, which will unlock billions for major infrastructure, clean energy and exciting startups.”
But critics said as it was just a voluntary scheme, it amounted to just being “window dressing”.
Will they do as they pledge?
As well as Aviva, L&G and M&C, the other signatories are Aegon UK, Aon, LifeSight, Mercer, NatWest Group PLC’s (LSE:NWG) Cushon arm, Nest, now:pensions, Phoenix Group Holdings PLC (LSE:PHNX), Royal London, Smart Pension, the People’s Pension, SEI, TPT Retirement Solutions and the Universities Superannuation Scheme.
Between them, the 17 hold between £219 billion and £252 billion of funds in defined contribution (DC) pensions, according to different sources, with an estimated £793 million currently in unlisted equity assets, or just 0.36% of total funds.
As such, said Michael Moore, chief executive of the British Private Equity and Venture Capital Association (BVCA), it “could be a huge step forward for the UK economy if the signatories follow through on their commitments” and raise this to anywhere near 10%.
He added: “It is an important statement that the new accord does not dilute the commitments made under the previous Mansion House Compact.”
The accord, which was jointly led by the Association of British Insurers (ABI), the Pensions and Lifetime Savings Association (PLSA) and the City of London Corporation, is voluntary and “builds on, rather than replaces”, the 2023 Compact agreed under the previous Tory government, which was signed by 11 pension providers and focused on unlisted equities, including venture capital and growth equity.
Aviva CEO Amanda Blanc said: “This is a major opportunity for the pension and investment industry to support UK growth while delivering improved outcomes for pension savers. As a significant investor in private markets, Aviva has recently launched a number of funds to give over four million workplace pension customers even greater opportunity to invest in UK assets, including innovative, early-stage businesses, and we want to do much more.”
Some criticism
Lisa Picardo, chief business officer UK at PensionBee, has some concerns.
“If this genuinely offers an opportunity for strong returns with sufficient liquidity, these asset classes will attract capital without the need for compulsion,” she said.
“However, the threat of mandation forcing schemes to allocate capital is deeply concerning, especially when it relates to private markets assets, where returns can be opaque, costs can be high and liquidity is limited.”
She said she supported efforts to boost UK investment and growth, and to improve returns, but added that “legislation must not override a schemes’ duty to act solely in the best interests of its members. That principle must be respected and upheld.”
Indeed, Neil Wilson, investor strategist at Saxo UK, said the accord was “just window dressing” and that as it was voluntary would not override a fund manager’s main aims.
“Investing in private companies is a nice idea and is a definite positive for entrepreneurs in the UK, which could help drive economic growth,” he said.
He noted that there are many conditions attached – including that any investments would be ‘subject to fiduciary duty and the consumer duty’ and ‘assuming a sufficient supply of suitable investable assets’ – so he thinks that “fund managers won’t be deviating from their risk models to satisfy some voluntary code”.
Wilson called for more focus on boosting capital markets: “Pension funds have gone from owning about 50% of UK equities to 5% in the last couple of decades – this is an urgent problem area that they ought to focus on.”
Meanwhile, the Investment Association’s CEO, Chris Cummings, says he is “pleased to see a broader definition of private market investments, including property and infrastructure,” something the IA has advocated for.
“Private markets can play an important role in improving outcomes for investors through greater diversification, while ensuring more capital is directed to the parts of our economy with the most productive potential,” he says.
“Alongside measures to boost UK capital allocation by pension schemes, further reforms to improve the attractiveness of UK capital markets for all investors will help the government to achieve its growth objectives.”
Still awaited are potential changes in the forthcoming Pension Schemes Bill and the next phase of the Pensions Review, Cummings noted.
** Update: Responses and criticisms added **
