"Rachel Reeves' proposal for compelling pension funds to invest in U.K. assets is unlikely to succeed"
The UK government plans to lure the nation's largest pension funds into investing more funds in unquoted domestic assets, steering them away from traditional investments and fostering growth. Chancellor Rachel Reeves is reportedly set to unveil a voluntary code in the coming weeks, which could unlock tens of billions of pounds for British industry.
The final version, dubbed the Mansion House Compact, will reportedly propose a voluntary commitment for pension funds to invest 10% of their assets in unlisted assets, which may yield around £100 billion in fresh funds. The code is slated for release this summer and is expected to avoid setting compulsory quotas.
This move could mark a significant shift in the way the UK's pension funds allocate their investments, steering them away from global bonds and mega-cap equities and toward less conventional assets like infrastructure projects and start-ups. By doing so, pension funds would likely reap better returns, while the extra funds would contribute to economic growth.
However, the government's decision to impose a corporate sector tax hike, increase employer national insurance, and push for higher wages may offset the allure of these investment opportunities. In addition, the UK's expensive industrial energy prices, climate change-related charges, and unfavorable tax rules for wealthy foreigners have dealt a blow to the country's reputation as a desirable place to invest or start a business.
Government officials must carefully weigh the benefits of their proposed voluntary code against these challenges if they are to successfully attract pension fund investment and fuel economic growth. By adopting targeted strategies, such as offering fiscal incentives, simplifying investment regulations, and streamlining planning processes, the government can create a more supportive investment environment and make the UK a more attractive prospect for pension funds.
Data shows that investment in unlisted assets can deliver higher long-term returns and reduce overall portfolio risk for pension funds. At the same time, it can unlock patient capital for long-term infrastructure projects, create jobs, lower the cost of capital for UK businesses, and strengthen the nation's industrial base. In short, fostering an environment where pension funds invest in the UK can yield substantial benefits for both savers and the broader society.
- The Mansion House Compact, set to be released this summer, proposes a voluntary commitment for pension funds to invest 10% of their assets in unlisted assets like infrastructure projects and start-ups, possibly unlocking around £100 billion in fresh funds.
- By steering pension funds away from global bonds and mega-cap equities towards less conventional assets, the UK government hopes to foster economic growth while offering pension funds the potential for better returns.
- However, challenges such as a corporate sector tax hike, increased employer national insurance, and high industrial energy prices may deter pension funds from investing in the UK, necessitating targeted strategies like offering fiscal incentives, simplifying investment regulations, and streamlining planning processes.
- Data suggests that investing in unlisted assets can provide higher long-term returns and lower portfolio risk for pension funds, while also unlocking patient capital for long-term infrastructure projects, creating jobs, lowering the cost of capital for UK businesses, and strengthening the nation's industrial base.
