Pension giants risk snubbing smaller stock markets in Mansion House investment drive
Top pension fund managers risk neglecting London’s junior stock markets and have made only sluggish progress on a landmark pledge to inject some £75bn into growth companies by 2030, a London business body has said.
The Mansion House Compact, a government-backed agreement signed last year by 11 pension managers worth around £400bn in assets, committed firms to investing five per cent of their assets to “unlisted equities” by 2030. Signatories of the deal last year include Aviva, Legal & General and Phoenix Group.
Under the terms of the agreement, any private company or firm on London’s growth markets, Aquis and the AIM, would be eligible for investment.
However, the Quoted Companies Alliance (QCA) has written to the signatories of the compact claiming that “despite the fanfare of its launch” the changes were not taking effect fast enough.
Smaller listed companies had also been sidelined in the debate and the “focus is heavily skewed to private assets over public”, the QCA’s chief executive, James Ashton, wrote.
“Among the unlisted equities that you pledged to back are hundreds of companies that trade on AIM and the Aquis Growth Market, operating in many exciting industries and based right across the UK,” Ashton said.
The comments come after the Association of British Insurers, which is coordinating the group, claimed in July that that “good progress” had been made on the plans despite just £793m, or 0.36 per cent, of total eligible funds being invested in unlisted stocks, well below the target five per cent. The “snapshot” reading was taken in February.
In its statement in July, the ABI also admitted it had no baseline figure to compare the allocation to, meaning it could not see whether the number had increased since the deal was signed.
“It may well mark ‘good progress’ as the ABI describes it, but there is no way of knowing that because comparative figures are not supplied,” Ashton wrote in the letter.
Among its asks of the pension managers, the QCA called for the signatories to clarify how much of the £793m they had individually invested, how that compares with their allocation a year earlier and what proportion had been invested in AIM and Aquis stocks.
Rob Yuille, head of long-term savings at the ABI, stressed today that the July progress update was a “snapshot” taken earlier in the year and also included “crucial preparatory steps taken by signatories”.
“Having important conversations with clients, hiring in new expertise, carrying out research into prospective investments and of course developing new funds or vehicles like LTAFs (Long-Term Asset Funds) are all pre-requisites to getting the money flowing,” he added.
The letter will likely add to pressure on the UK’s top pension managers as political will grows for more ‘productive’ investment of the UK’s retirement cash.
Since taking power in July, the Chancellor Rachel Reeves has said that pension money will play a central role in financing the government’s growth plans and funding both British companies and infrastructure projects.
Reeves also threatened to strong-arm money managers into allocating more of their cash to growth companies while Shadow Chancellor.
Several of the biggest companies have taken steps toward boosting their investment to the private markets in recent months. Legal & General, Aviva and Phoenix have all launched dedicated venture capital and private asset divisions.
In a statement to City A.M. earlier in the summer, the boss of L&G, Antonio Simoes, told City PM the company was rowing in behind the plans and welcomed the government’s push to put pension cash to use in “productive” assets.
Phoenix CEO Andy Briggs said in July the five per cent commitment was a “starting point” and the company intended to dramatically scale up its unlisted investment.
Aviva this week launched a venture capital arm and said the UK’s “supportive policy environment, is epitomised by the Mansion House Compact”.