The Prime Minister and Chancellor have challenged institutional investors in the UK to divert a greater proportion of assets into igniting an ‘Investment Big Bang’ that will drive the post-pandemic economic recovery.
In a letter from Prime Minister Boris Johnson and Chancellor Rishi Sunak, the government has called for a greater proportion of the hundreds of billions of pounds in pension funds and other institutional investors to be invested in long-term assets, such as pioneering firms and infrastructure projects, to drive the nation’s economic recovery and deliver better returns.
Currently, UK investors are underrepresented in their investment in UK assets, with global investors including Canada and Australia-based pension funds already benefiting for long-term investment in the UK. Over eighty per cent of UK defined contribution pension funds’ investments are in mostly listed securities, which represent only twenty percent of the UK’s assets.
The letter, co-signed by the Prime Minister and Chancellor, says:
“It’s time we recognised the quality that other countries see in the UK, 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 UK pension savers benefitting from the fruits of UK ingenuity and enterprise, being given the opportunity to back British success stories, and secure higher returns and better retirements.”
The Prime Minister and Chancellor have urged investors to consider whether they could invest more UK assets that require longer-duration investments.
This challenge comes alongside the action the Government is already taking to remove obstacles to long-term illiquid investment within the UK, by setting up the UK Infrastructure Bank and introducing flexibilities into the cap on fees that defined contribution pension schemes can charge. The Government is also working closely with regulators to ensure a supportive regulatory environment – for example, with the support of the Productive Finance Working Group, the Financial Conduct Authority will launch a framework for a new vehicle for long-term investment, the Long Term Asset Fund.
Chris Cummings, Chief Executive of the Investment Association, said:
Opening up access for investors to long term projects such as infrastructure and new technologies is a positive move that will benefit pension savers, while at the same time boosting the supply of much needed productive finance for the UK economy. It is welcome news that the government sees this opportunity and is working to make it easier for institutional investors to invest in the country’s long-term growth. Certain retail investors should also be allowed to access the same opportunities as well. The IA pioneered the proposals for the Long-term Asset Fund and it is heartening to see FCA framework for the LTAF now under construction as it will provide a significant new way for investors to benefit from illiquid investments. Getting this right will require a new partnership between the regulatory authorities and industry to ensure that pension funds, and retail investors, have access to transparent, well governed funds that return good value for money. The industry will look to work with pension scheme trustees, and their advisers, to deliver these outcomes.”