Jupiter UK equity fund manager Chris Smith says the chancellor’s proposals leave many questions unanswered.
“As a UK fund manager with significant investments in UK plc, it goes without saying that we are extremely keen to see the UK’s entrepreneurs, economy and its corporations thrive globally,” Smith says.
“That said, it is unrealistic to expect the reforms announced to make a meaningful difference to growth or investment in the UK in the short term and there are still a lot of questions to answer. How are ‘UK growth assets’ defined? What does a ‘voluntary expression of intent’ mean? What will be the liquidity, valuation, cost differences and implications to pension fund members being asked to invest in unlisted assets?
"Is there enough in the way of high-quality, unlisted investment opportunities in the UK for an additional £75bn of investment? What evidence suggests that unlisted assets will deliver higher, risk-adjusted, after-fee returns and therefore justifies a higher allocation in pension portfolios?”
Any calculation around the long-term average returns that can be achieved by any asset class, including private equity funds, may be skewed by the past decade of mostly very low interest rates, which boosted all asset classes but was acutely helpful for private equity investors. This is because these funds usually used some debt to make investments, and the cost of debt fell dramatically in the decade after the global financial crisis, which may have skewed the long-term average of returns and so they could be lower in future.
The nine pension investment providers that have made the 5 per cent commitment have promised to hit that target by 2030, and they can only operate within the parameters set for them by the trustees of the pension funds.
The 2030 target only applies to default funds — that is, the portfolios of those clients who have not actively chosen the funds themselves.
Sir Steve Webb, a former pensions minister and currently a partner at LCP, says this makes the 5 per cent threshold announced an “aspiration.”
He tells FTAdviser: “The nine firms won’t have made this commitment without already having had agreement from the trustees and others, but of course the commitment is to do this by 2030 and a lot can change in that time.
"If they don’t see assets worth investing in by that time, they won’t allocate the 5 per cent to there. It’s never been the case that they were completely banned from investing in this way, but the regulatory regime that was in place meant many chose to not do it. That is what has changed now.”
