‘Cautious welcome’: City bigwigs react to Mansion House Accord
City analysts and politicians have been probing the ramifications of the Mansion House Accord, a new deal spearheaded by the government that aims to encourage more diverse investments by pension funds.
The accord, which was signed by seventeen major pension funds yesterday, is a voluntary commitment to allocate ten per cent of funds to private markets, with at least five per cent going to UK assets, a move that the Treasury claims could see the redeployment of as much as £50bn in fund assets between now and 2030.
Simon French, chief economist at Panmure Liberum, said the move deserved a “cautious welcome” but questioned how funds would grapple with growing industry fears on the overvaluation of private equity assets in the context of their fiduciary duties.
“There is a funding gap here for private assets where the fee structure, fragmented expertise, and lack of suitable investment vehicles has locked savers out of access to the type of returns which Canadian, Australian and US investment firms are happy to gain exposure to,” French said.
“Where I am troubled by the approach is that private assets as an asset class have characteristics that may not be best suited for both fiduciary duty, and good asset custody. These include liquidity, governance, valuations, and leverage.”
James Ashton, chief executive of the Quoted Companies Alliance, queried why there was no focus on public markets in the accord.
“We welcome pension providers allocating more of their funds to the UK, but the Mansion House Accord is a missed opportunity to more explicitly back the high-growth stocks trading on AIM and Aquis that create productive jobs and power regional economies,” Ashton said.
“Private markets might be in vogue today, but the illiquid assets that use them will need public markets tomorrow when owners must trade. Savers whose money is being deployed in this exercise will no doubt be grateful for that flexibility.”
Government role
Shadow chancellor Mel Stride questioned whether it was the role of pension funds to assist with government objectives.
“Pension savings should never be there to dig a Chancellor out of the economic hole that she has made”, he told the House of Commons.
“We know Labour ministers have a habit of thinking they know best what… to do with other people’s money, but it should ultimately be the responsibility of the providers, who have been entrusted by savers with their money, to make investment decisions.”
Treasury minister Torsten Bell replied that there is “wide consensus about the direction of travel to invest more in private assets” and the agreement set out by the Chancellor is a “voluntary agreement led by the industry”.