The UK pensions industry has cautiously welcomed the British Business Bank investment vehicle initiative introduced by the chancellor of the exchequer, Jeremy Hunt, yesterday when he confirmed the bank would establish an investment vehicle, opening its commercial capability and investment pipeline to pension fund investment.
This will utilise the bank’s market access and position as the largest domestic investor in UK venture capital. To support this, the growth fund will draw on a permanent capital base of over £7bn.
The government has highlighted that industry reaction to this initiative has been positive, with eight pension providers, managing total assets of over £350bn, acknowledging that such a vehicle could be a valuable addition to the market.
Tim Orton, chief investment officer at Aegon, said that investing in private assets will be a completely new venture for many pension schemes.
He said: “Alongside Long Term Asset Funds (LTAFs), we welcome the development of the British Business Bank’s offering as it’s important to offer a range of routes into such investments.”
However, Orton said that making changes to workplace pension investments is something which “shouldn’t be rushed”. This is why, Orton said, the Mansion House Compact commitment to invest 5% of default funds in private assets is looking ahead to 2030.
“Pension schemes must be given time to plan a considered and effective move into private assets, with improving member outcomes front and centre,” he added.
Alison Leslie, head of DC investment at Hymans Robertson, agreed that it would “take some time” for the initiative to be commercially viable for many pension arrangements.
“Over time however we think this is a welcome addition to the universe of investments available for DC savers focusing specifically on the UK,” she said, adding that if the investment case stacks up, like any investment, it would in time be considered as part of the investment universe but the “rationale and returns have to bear fruit”.
Stephen Budge, partner at LCP, said that while it is “great to see” the drive by the chancellor and the British Business Bank seeking to enable DC investment, it does not go “far enough to persuade investors to ‘buy British’, rather than investing more globally as trustees are obligated to do”.
He said: “Long-Term Investment for Technology and Science (LIFTS) was supposed to create the opportunity to dial up the investment case for UK investment as well as unlocking the opportunity.
“However, without any tax benefits or fee incentives, we simply do not see how pension schemes will meet the call to invest in UK opportunities to the extent the chancellor and wider government are looking for.”
Budge said that having placed around £1bn of private market investment through client investment strategies over the last 12 months, he knows there is significant interest and willingness amongst trustees to commit the time and energy to invest in these significantly more complex investment opportunities – all seeking to improve the outlook for DC pension savers.
“We are concerned that the huge amount of work to get these initiatives off the ground will be met with indifference by trustees and the broader industry,” he said, adding that it is worth remembering the previous opportunities such as the Pension Infrastructure Platform (PIP) that “never materialised the support that was predicted”.
He said: “Without a greater level of government support to drive industry commitment, we are concerned that these bold and positive developments will see a similar fate to the PIP.”
Better outcomes for members
However, Paul Bucksey, chief investment officer at Smart Pension, was more optimistic. He said that giving its UK savers “access to higher net returns by investing in unlisted equities, including innovative high-growth UK companies, as part of a well diversified portfolio, will deliver better outcomes for [savers] over time”.
He said: “We are committed to ensuring that our members are invested in a range of appropriate and relevant asset classes. For example, we have had a private credit allocation in our default growth fund since April 2021, which has given rare access to this asset class in UK DC pension schemes.”
Bucksey said he is “pleased” to support the government’s ambition to encourage investment into UK venture and growth assets.
He added: “As a successful British fintech, we are proud to be supporting the country’s technology sector, helping more home-grown startups and scaleups to flourish and thrive. We look forward to working with the government and the British Business Bank over the coming months to establish these vehicles.”