Tuesday 09/07/2024 6:00
A year ago this week Jeremy Hunt was celebrating victory in the Square Mile. Former Chancellor and then Mayor of London Nicholas Lyons has just got ten of the UK’s leading pension managers to sign a deal they have described as a “historic watershed” for UK investment.
After years of wrangling between the UK’s tech champions and the more staid pensions industry, the Mansion House Compact, drawn up at the City of London Corporation’s historic headquarters opposite the Bank of England, committed some of the UK’s biggest pension managers to “allocate at least five per cent of their assets by 2030 funds to unlisted shares”.
It was a deal that promised to close a huge funding gap in the UK and go some way to solving the malaise that has forced so many of Britain’s most promising start-ups overseas.
A year has passed and a lot has changed in some ways. Hunt was sacked from government and Lyons moved out of Mansion House into his old role as chairman of the Phoenix Group, following the end of his one-year term as Lord Mayor. He was knighted last month for his services to the city during a long and illustrious career.
But in unlocking investment, the change was icier.
A week after the deal was announced, a group of about 100 venture capitalists wrote a matching deal to welcome the influx of pension money into their own funds. However, according to City sources, the two groups have had virtually no involvement with each other since then.
He asked City AM earlier this year, the head of the British Venture Capital Association’s “Expert Panel”, tasked with driving the agenda, was decidedly unsure whether the deal would actually deliver the promised five per cent.
“I am sure? I’m confident we’ll create ways and structures and the ability for retirement homes and everyone to choose and be able to invest in this asset class if it’s right for their members,” Kerry Baldwin said.
Meanwhile, the snap election unsettled plans by the Bank of England to launch a vehicle to move cash from pension funds to growth tech companies. The original timetable for submitting the plans to the regulator in July has been pushed back to at least the autumn to give new Commerce Secretary Johnathan Reynolds time to engage with the system and sign off on it, City AM he understands.
In a parallel universe, Hunt would have discussed the compact’s progress at a lavish dinner at the Mansion House this week, but instead his replacement is settling in at the box office and the date for the dinner has yet to be set.
So what will come of the industry’s big investment plans?
In the absence of the town’s annual dinner, City AM can reveal that Sir Nicholas will bring together signatories to the compact, including Aviva, L&G and Scottish Widows, along with the City of London Corporation, the Association of British Insurers and the British Venture Capital Association, this Thursday to jointly review its progress and map out its next steps.
“It’s important at this meeting to make sure we’re all on the same page and understand what’s going on and then take that to ministers going forward,” says Michael Moore, chief executive of the British Venture Capital Association. City AM.
“What do we use Thursday for. [to discuss] how much progress we are making and what we can do next,” he adds.
For Rachel Reeves and the government, their growing to-do list may get a little longer as the group sets out a list of demands to get the plans up and running.
Central to their concerns is likely to be the question of cost. The higher fees associated with investing in private, unlisted assets have typically been a barrier to pension money flowing into private markets. Abolishing fees for savers already invested in certain schemes is proving to be a tricky hurdle for pension managers.
Beyond that, perhaps even more troubling is the scale and inherent risks of private markets, which have unsettled the traditionally conservative pension industry. While politicians so often point to Canada and its giant funds as a model for success in supporting growing companies, systems like the Ontario Teachers Pension Plan, which manages about $247 billion, dwarf their British counterparts and allow for a diversified but still meaningful commitment to support. start-ups.
“They’re a good model in many ways, but you can’t short-cut what they’re doing at this scale,” says Dan Mikulskis, chief investment officer of the £28bn People’s Pension. City AM
“You really have to work your way through it. I think there’s a bit of a concern that you’re almost trying to force people to run before they can walk, and then it’s not going to be optimal,” he adds.
While some of these hurdles can be cleared by the industry, scale and consolidation will ultimately be the challenge for Reeves. Her predecessor, Hunt, set in motion a number of programs that could provide a potential solution, including turning the industry’s lifeboat, the Pension Protection Fund, into a vehicle to absorb and consolidate underperforming systems.
Reeves has also been brash in the past, threatening to force pension funds to cover unlisted assets. In her inaugural address to business leaders yesterday, she made it clear that pension cash would be at the heart of her investment plans, saying the government would “turn [its] attention to the pension system, to encourage investment in domestic enterprises and to provide higher returns to savers”.
And in doing so, he will have the support of some of Britain’s biggest names in the boardroom. In the statement to City AM. L&G boss Antonio Simoes said this yesterday City AM the company rowed behind the plans and welcomed the government’s push to use pension money in “productive” assets.
“With the right public-private partnership, investing pension capital in productive assets can help ensure the UK remains competitive internationally, support financial adequacy for individuals and deliver wide-ranging benefits for the UK economy,” added Simoes. .
However, it is currently unclear how Reeves will unlock the flood of cash and the levers he will pull to keep the investments flowing. The Ministry of Finance did not respond to a request for comment yesterday.
After one year, progress in unlocking pension cash for start-ups has been minimal. The City is crying out for something Reeves and Starmer may be familiar with from recent weeks: change.