Investment company industry voices call for inclusion
As the Pension Schemes Bill continues its passage through Westminster, the Association of Investment Companies (AIC) is urging the UK Government to amend the Bill to include investment companies.
The AIC’s call is supported by former pensions minister Baroness Ros Altmann, Baroness Sharon Bowles, Jonathan Lipkin from the Investment Association, and other key industry figures.
Investment firms manage more than £100 billion in assets such as infrastructure, property, renewable energy generation, private companies, and start-up businesses. As the legislation is currently drafted, pension schemes would not be able to meet any future requirement to invest in private assets by using investment companies.
Richard Stone, chief executive of the AIC, says: “Excluding investment companies from the Pension Schemes Bill simply does not make sense. The Bill gives the government powers to mandate pension schemes to invest in certain types of assets. Let’s say these powers were used in future –pension schemes would be barred from using a fund structure which has been thoroughly road-tested as a way of accessing these assets.
“Leaving investment companies out of the Bill doesn’t just undermine the UK’s world-leading investment company industry, it also risks restricting choice for pension schemes and harming pension savers. Sticking with this policy is a clear and avoidable own goal.”
Baroness Altmann adds: “Listed investment companies are an ideal way for pension funds to invest in illiquid long-term assets, such as infrastructure, property, alternative energy, and small growing businesses. They have proven expertise in putting together diversified portfolios of expertly managed assets, which investors can buy to gain exposure to the exact assets which government wants pension funds to support.
“Therefore, it seems irrational for the government to deny pension funds the choice of using closed-ended investment trusts or REITs [Real Estate Investment Trusts], if they want to meet their Mansion House Accord targets.
“Excluding trustees from these investment companies would close off an investment option that could ensure more pension money flows into new productive investment opportunities, boosting their long-term returns and the economy.”
Baroness Bowles, a member of the House of Lords Financial Services Regulation Committee, comments: “The government has adopted a policy that discriminates against investment companies in favour of other vehicles. This is unacceptable.
“If the justification is that investment companies simply reallocate capital from one investor to another, then exactly the same is true when inflows are netted off against outflows in an LTAF [Long Term Asset Fund].“Listed investment companies have raised billions to invest in productive assets. To exclude them from the Pension Schemes Bill is a glaring mistake which is surely not a good advertisement for London capital markets.”
Jonathan Lipkin, director of policy, strategy and innovation at the Investment Association, says: “Private markets are playing an increasingly important role in the capital market ecosystem and supporting both UK economic growth and infrastructure funding. It is encouraging to see progress enabled through the Mansion House Accord and Compact.
“As the government considers its reserve powers, it is important that the Pension Schemes Bill does not exclude investment companies. The focus must be on the assets where capital is allocated, not the choice of investment structure used to access them.”
Mike Gerrard, chair of International Public Partnerships, says the Bill presents a historic opportunity to channel more pension capital into national infrastructure and unlock private investment for growth. But he warns that, as currently drafted, it excludes investment companies – the very vehicles that have already committed billions to UK infrastructure.
“That would be a missed opportunity at the precise moment the government is seeking to mobilise domestic capital,” he explains. “Including investment companies within the Bill would broaden choice, reduce risk, and help deliver the government’s objective of channelling long-term pension capital into vital national infrastructure.”
Meanwhile, Richard Laing, chair of 3i Infrastructure, comments: “Investment companies are an extremely effective route to investing in private infrastructure businesses and assets. Including investment companies in the Pension Schemes Bill will enable the government to achieve its aim of encouraging pension schemes to invest more in private assets.”
Richard Morse, chair of The Renewables Infrastructure Group, points out that by offering, long-term, diversified, and inflation-correlated returns underpinned by real assets, UK infrastructure investment companies are a natural fit for UK pension schemes.
He adds that including investment companies within the Pensions Bill would give schemes access to stable, productive investments that support the UK economy, and excluding them would introduce an unnecessary bias and limit schemes’ choices.
Richard Shepherd-Cross, investment manager of Custodian Property Income REIT, concludes: “Excluding real estate investment companies from the definition of ‘private assets’ in the proposed Pension Schemes Bill would be counterintuitive.”
Comments
Want to join the conversation? Please or to comment on this article.