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The UK economy could be about to receive a £50bn cash injection after Britain’s biggest pension funds pledged to redirect resources into private markets in a major policy shift.
The voluntary, non-binding agreement by the funds, dubbed the Mansion House Accord, will see increased investment into major infrastructure projects as well as greater venture capital investment into fast-growing startups, in a move which the Treasury hopes will create jobs and drive economic growth.
Under the terms of the accord, signatories have agreed to allocate at least ten per cent of all defined contribution (DC) funds into private markets by 2030, of which five per cent will go to UK private markets.
At least seventeen pension funds have signed up to the accord, including Aviva, M&G and Royal London, an increase on the eleven funds who signed up to the earlier, less extensive Mansion House Compact in 2023. But the list of signatories was marred by the conspicuous absence of pensions giant Scottish Widows, which withdrew its commitment despite signing up to the earlier pact.
A Scottish Widows spokesperson told City AM the firm “remained committed” to the 2023 agreement but had instead decided to set up a separate long term asset fund “so that our customers have the option to invest further in private markets.”
No punishment…for now
The agreement, which is subject to fiduciary duty and Consumer Duty rules, has been made “assuming a sufficient supply of suitable investable assets”, and is “dependent on implementation by the government and regulators of critical enablers,” a set of provisos that could allow funds to stay committed to the accord even if they fail to hit allocation targets.
The Treasury has stopped short of threatening to punish pension funds for failure to comply with the agreement, a prospect that many in the industry had sounded the alarm over. But progress against the commitment will be monitored, the Treasury said, adding it would be “reinforced” by a series of forthcoming measures.
Sir Nicholas Lyons, architect of the earlier Mansion House Pact, said pension funds that don’t invest in UK assets should be named and shamed to encourage participation by the industry.
Lyons told the Telegraph the government should instead “retain the threat of mandation to help concentrate their minds.”
David Lane, chief executive of TPT Retirement Solutions, said: “Investment in assets such as infrastructure, transportation, housing, venture capital and private markets can play an important role in improving risk-adjusted returns for members while also contributing to economic growth.
“Meeting the Government’s objectives while also maintaining fiduciary duty and ensuring strong returns for members are not mutually exclusive ambitions.
“However, hurdles remain around value for money considerations and the availability of suitable investment opportunities.”
