The prime minister and the chancellor have called on the UK’s institutional investors to plough more capital into UK assets to ignite an “investment big bang” that drives an economic recovery from the pandemic.
In a joint letter with Rishi Sunak, Johnson said the UK’s institutional investors should “seize the moment” and use their “hundreds of billions of pounds” to back longer-term UK assets such as “pioneering firms and infrastructure.”
These include bridges, roads and wind farms that support an “innovative, greener future” and would aid better retirements for pensioners, the letter said.
The higher fees associated with these non-standard investments, such as private equity and infrastructure, have traditionally prevented pension fund managers from investing in these sectors.
UK assets are being overlooked by domestic investors, leaving their international counterparts to gather the returns, the PM and chancellor argued.
“UK institutional investors are under-represented in owning UK assets,” the letter said.
“Over 80 per cent of UK defined contribution pension funds’ investments are in mostly listed securities, which represent only 20 per cent of the UK’s assets.”
“It’s time we recognized the quality that other countries see in the U.K., and back ourselves by investing more money into the companies and infrastructure that will drive growth and prosperity across our country.”
“We want to see U.K. pension savers benefiting from the fruits of U.K. ingenuity and enterprise, being given the opportunity to back British success stories, and secure higher returns and better retirements,” the pair wrote.
One aim of the plans is to encourage pension fund investors to support high-growth UK tech companies and address the barriers that mean they often miss out on domestic institutional investment, as fund managers are wary of pouring capital into riskier startups.
The pair urged pension fund investors to “consider whether they could invest more UK assets that require longer-duration investments,” and said the government “remains open to addressing further barriers where they are identified.”
“It’s clear from data around the world that pension funds investing more in growth assets like early stage tech is good for both startups and pensioners,” said Dom Hallas, executive director of the Coalition for a Digital Economy (Coadec).
“It’s the next big step for the UK startup ecosystem … The sooner we can move from discussion to capital allocation, the better.”
As part of the plans to address barriers to investing in these areas, the government has loosened a 0.75 cap on annual management charges so that defined contribution (DC) pension schemes will invest more in “illiquid” asset classes like venture capital and private equity firms, in the hopes this will stimulate the UK’s recovery.
Stephen Welton, Executive Chairman at growth investor BGF, said today’s announcement was a “step in the right direction” towards removing the barriers that disincentivise investors such as DC pension schemes and insurers.
“We need to add more flexibility around the defined contribution (DC) pension funds’ charge cap – by excluding performance fees from this cap for relevant growth equity and venture capital investments – to enable these entities to invest in important assets that have for too long been off limits,” Welton said.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, also stressed the value of ministers including domestic retail investors in their plans.
“We would expect many retail investors also to be interested in investing in more long term projects – particularly in powering the green industrial revolution and helping the UK become a science and tech superpower,” Streeter said.
“The key to this will be to consider retail investors’ particular requirements and perspectives, ensure value, and create well governed products which deliver good outcomes.”
As well as pension funds and retail investors, other UK savers are set to benefit from returns on long-term investments that “hold the potential to give a much-needed boost to retirement pots”, according to Pete Glancy, head of policy at Scottish Widows.
“We hope this talk turns to action and the government’s call for an investment big bang does not end in a whimper,” Glancy said.