Strategies to deliver growth

In this latest blog in our Mansion House series, we take a look at the Government’s newly published industrial and infrastructure strategies. What is the Government hoping to achieve with these strategies, and what implications do they have for pension schemes’ investments?

As part of their commitment to the Mansion House Accord, major DC pension schemes are now seeking to invest 10 per cent of their default funds in private markets assets (including property, infrastructure, private equity and venture capital), with half of that in the UK. Failure to reach these investment levels could have real consequences beyond breaking a voluntary pledge; the recently announced (and, to some, controversial) mandate power in the Pension Schemes Bill, if it were used, could see schemes that fail to meet the Government’s investment targets losing their eligibility for auto-enrolment. Of course, all of this presupposes a solid pipeline of viable and investable assets for pension scheme trustees to invest in. Do the Government’s recently published Modern Industrial Strategy, and 10-year National Infrastructure Strategy help? We take a closer look below.

The Government intends its Modern Industrial Strategy to support growth in 37 “frontier industries” across eight sectors; one of the ways it means to do this is through channelling “pensions capital into the UK”. In some respects, this is good news for those committed to the Mansion House Accord. For example, two of the IS-8 sectors – “Life Sciences”, the definition of which includes the development of pharmaceuticals and experimental biotechnology, and “Digital and Technologies” which includes telecommunications, information services and experimental development in natural sciences and engineering – are seemingly natural fits for venture capital investment and private equity respectively.

The National Infrastructure Strategy, meanwhile, aims to increase private capital investment in housing, transport, energy and the National Wealth Fund. Examples include the proposed expansion of Heathrow and London City airports. This seems more uniformly aligned with the Mansion House Accord in terms of investment opportunities; and if new and improved infrastructure supports economic growth more generally, this could pay pension schemes real dividends.

If these growth strategies are successful, then, pension schemes will find it easier to meet investment targets and the Government may be less likely ultimately to mandate investment allocations. But while success would help bolster the supply of viable and attractive non-listed investment opportunities, it would not change trustees’ duties to act in the best interest of their members and to comply with investment regulations. The Government is yet to explain how and when it will tackle the issue posed by trustees’ fiduciary obligations.

Of course, whether these strategies will in fact be successful remains to be seen. Schemes may find themselves in a difficult position if not: the mandate power, fiduciary duties and investment regulations will all compete with their voluntary commitments to invest in UK plc.

For more resources on Mansion House, please visit the Pensions Hub.

Many thanks to Matthew Greenhill for his help in preparing this post.