UK finance industry divided over private markets investment pledge

The UK’s financial services industry is divided over a new agreement among some of the biggest pension firms to invest at least 10 per cent in private markets by 2030.

The voluntary pledge, known as the Mansion House Accord, has been signed by 17 of the UK’s largest workplace pension providers including Aegon, Aviva, Legal & General, Mercer, Phoenix Group, NatWest Cushon and Royal London.

The fresh commitment is a step up from the former Mansion House Compact, a non-binding pledge to invest just five per cent into private markets by the end of the decade, with no vow to allocate anything to the UK.

But the reaction to the pledge has been mixed, with some firms happy with the move, while others are unconvinced that it will be beneficial to savers.

Read more: Pension firms pledge to invest 10pc in private markets by 2030

Myles Milton, chief executive and co-founder of private markets investing platform Globacap, praised the announcement as a “huge step in the right direction” for pension funds that demonstrates they are “prioritising pensioners’ interests as well as economic growth.

“Encouraging pension funds to invest in fast-growing tech firms will not only give the industry a boost, but it also gives UK pensioners the opportunity to profit from UK tech innovation,” he said.

Sonia Kataora, partner and head of DC investment at consultancy Barnett Waddingham, echoed that this is a “big step” for pension schemes and the chancellor is “no longer pulling her punches”.

“So long as the net returns of private markets are good, most UK pension savers will get on board with using their money to improve the health of UK infrastructure and other productive assets,” she added.

Read more: Calls for UK policy changes to boost pension investment into private capital

Columbia Threadneedle’s head of private equity Hamish Mair added that the move could open the door to greater private equity investment, but cautioned that the industry needs to better utilise the tools on offer.

“While Mansion House Accord II sends a clear signal – it’s crucial that we also build on existing mechanisms already available. Private equity investment trusts are a case in point.”

However, Jason Hollands, managing director of wealth management firm Evelyn Partners, cautioned that sizeable allocations to illiquid assets could be risky for savers and that previous strong returns made on private markets by investors over the last two decades “were supported by a period of ultra-low interest rates.”

“While we must hope this move will manifest itself in improved returns for pension scheme members, sizeable allocations to illiquid investments is not without risk,” he added.

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Dan Kemp, chief investment officer at Morningstar, added that the announcement “appears to be focused on supporting British industry rather than solely for the benefit of investors” and cautioned that private markets’ premiums are not consistent.

“For many, access to private assets provide a broader range of investment options and can improve long term returns due to the presence of an ‘illiquidity premium’. However, this premium is not constant and fees in private markets tend to be higher which can act as a drag on return.”