Smart Pension joined the Mansion House Compact in July 2023 as one of the first signatories, committing to allocating at least 5% of its default funds to unlisted equities.
Paul Bucksey chief investment officer at Smart Pension, spoke to IPE on how he plans to deliver on the target.
Smart Pension joined the Mansion House Compact for “two main reasons”, according to Paul Bucksey, chief investment officer at Smart Pension.
First, he said that investing in unlisted equities should drive better returns for members. And second, Smart has already invested in private credit before, making the move into unlisted equities “a logical step”.
Smart allocated assets to a private credit mandate from April 2021, but at the moment all its equity exposure, including its biodiversity fund allocations, have been listed.
So how is Smart hoping to reach the private equity investment target of 5% by 2030?
Bucksey said that Smart went through a lot of meeting cycles to reduce its investment costs to be able to allocate to private markets, which are associated with higher costs, in order to avoid asking members to pay management charges.
Bucksey said the approval process for this exercise is expected to conclude this month before Smart looks to make changes to its asset classes over the summer.
It will start with allocating to unlisted infrastructure, before moving on to private equity, Bucksey disclosed.
He added: “Whether we will be able to do this in 2024, I don’t know. We are quite busy so it might slip into 2025 but we can see a pathway for all of that.”
Smart is yet to decide whether to launch an alternative fund or hire a manager to manage allocations instead, but Bucksey is certain the allocation will exceed the 5% target dictated by the compact.
He said: “It could easily be 10% of our defaults going into private equity.”
Bucksey added that until there is a shift in mindset and employers and consultants are willing to spend more on their investment, and stop relying on passive index tracking, it is unlikely that it will go higher than 10%.
The 10% private equity allocation would sit alongside private credit allocations.
He said: “This could bring us to a 15% allocation to private markets, but more heavily weighted towards equity.”
The next sector that Smart wants to look at is natural capital, although Bucksey stressed this move is in its early stages.
“We are trying to figure out what else we can do. We recently issued a deforestation policy,” he noted, adding that, generally, Smart prefers to work with asset managers and their investment companies to try and steward them to do better things, instead of creating exclusions.
He added: “There are certainly some exclusions, but we prefer to work with asset managers to give their portfolios an opportunity to demonstrate that they are actively working to transition.”
The next theme would be biodiversity investment, Bucksey said.
“We will continue to work with our managers as they develop their thinking. Some of these natural capital ideas may find themselves into more mainstream investment anyway, but that’s probably as far out as we are looking at the moment.”
Mansion House Compact explained
The Mansion House Compact is a commitment announced by the UK chancellor Jeremy Hunt in his keynote policy speech at Mansion House on 10 July which calls on DC pension schemes to boost investment in UK unlisted equities.
As part of the compact, its signatories are expected to allocate at least 5% of their default funds to unlisted equities by 2030.
Currently, the DC schemes’ investment in UK unlisted equities is under 1%.
According to the chancellor, if the UK’s DC market follows suit, this could unlock up to £50bn of investment into high-growth companies by that time.
The initial signatories of the compact included Aviva, Scottish Widows, Legal & General, Aegon, Phoenix, NEST, Smart Pension, M&G and Mercer.
Since then, Aon and Cushon have joined as signatories of the compact.
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