Pension funds balk at using number 10 to fuel UK investment boom

The UK government’s ambition to fuel Postcovid’s ‘investment big bang’ with billions of pounds in pension funds is likely to wane after the pension fund rejects Downing Street’s call to invest more. money in the project.

When Finances strained due to the pandemicLast month, the Prime Minister and Prime Minister called on the UK pension fund and asset manager, which has £ 1 trillion in assets, to use the funds to support ‘the future innovative, healthy and respectful of the country’s environment ”. Made.

However, the Financial Times survey of private and public sector pension plans and pension fund managers is: appeal Due to cost and complexity issues, extensive support has not been produced.

A senior executive with a large pension system said the government had pushed ” big Bang“.

“They can’t force people to suddenly turn on [cash] “Tap,” a senior executive at a large asset management company told FT.

In the meantime, FT has received responses from 22 funds and managers with more than £ 700 billion in assets and tens of millions of policyholders and annuity clients.

The anxiety is driven by both ‘better rebuilding’ and ‘upgrading’ government, such as infrastructure projects such as bridges, social housing and renewable energy, private equity and construction. venture capital, and has a strong patriotic attitude to increase domestic investment. It was bigger than the charm. ” Politics.

“We are global investors and have a fiduciary responsibility to invest in the assets that best match our investment objectives, regardless of the region,” said the £ 57 billion UK Telecom Pension Plan.

“BTPS has always been a major investor in the UK .. But as a large pension scheme invest elsewhere if the right opportunities are not available here.”

Abrdn, a UK asset manager, formerly known as Standard Life Aberdeen, has £ 475 billion in assets and says he will invest in the UK if he “reasons”.

“The first question I ask is not, ‘Will it recover better or will this level increase? ”Said Neil Slater, Global Head of Real Assets at Abrdn. “The first question I ask is, ‘Does this make sense to my clients? ”

Most pension fund portfolios are dominated by stocks and corporate bonds.

Municipal pension plans are already big investors in the types of assets the government wants more support for, but some say government strategy does not influence investment decisions.

“The type of opportunity that the government mentions in the letter to the pension system is considered any other system, that is, it matches the strategy and provides the risk / reward characteristics that the fund is researching. “I will,” said Jeff Houston. , secretary of the advisory council of the local authority pension system.

The so-called illiquid assets promoted by the government are more generally held within the framework of defined benefit plans and promise to guarantee the respect of pensions. These are less common in defined contribution pension plans. With defined contribution plans, there is no commitment to retirement income levels due to contribution limits and fiduciary concerns about complexity and liquidity.

Scottish Widows, with a large DC default annuity fund of £ 40bn in assets, is looking for illiquid investments, believing there is a clear return on investment, adding: It’s also complicated. ”

“To make these investments on your behalf, you have to weigh the pros and cons of time and the right expertise. “

Aegon manages £ 47bn and said: “Our main objective is to maximize the cost / risk / return profile of the default fund. Decisions to invest in illiquidity, such as asset class and holding ratio, should be made with this in mind. We need a thorough analysis before we can do that. “

Some funds were more openly critical of government initiatives.

“We don’t believe the UK government should play a leading role in the allocation of pension assets,” said PensionBee, which manages around £ 2 billion in pension savings.

Many survey respondents say governments can do more to encourage investment in alternative assets by offering incentives, such as making high-risk investments in start-ups. I said I can.

The £ 80 billion University Aging Program said: “It is important for the government to ensure predictable, transparent and stable regulation of infrastructure assets” in order to maximize the success of the Big Bang initiative.

Several pension schemes have boosted government motivation, including Nest, a state-backed £ 20 billion pension fund that recently announced its ambitions for growth. £ 1.5 billion private equity allocation, or 5% of its assets, by 2024.

Phoenix, the UK’s largest long-term savings and retirement company with £ 300 billion in assets, is also backed by public funds.

Mike Ekins, Chief Investment Officer of Phoenix Group, said:

“Yields on corporate and government bonds have been limited to a level where limiting the world in which we can invest to gilts and corporate bonds is not sufficient to meet our obligations to policyholders or clients. pension plans. “

The government said: “Investors around the world are benefiting from British ingenuity and corporate performance, and British retirees are supporting the UK’s success, accessing better returns and being innovative and healthy. We hope to have the opportunity to support an environmentally friendly future. Their country. “