Institutional Asset Manager Newsletter 05.07.24

Investing in the UK

It is possible that by the time you read this the UK has a new government, but at time of writing, the electorate is still casting their votes.
Whichever party is successful, the focus will be on returning the country to growth and with that, attention turns to sourcing the requisite capital to achieve levelling up ambitions and the transition to net zero.
As we report this week, the UK’s pension assets are likely to be targeted, since they are currently under-allocating to the nation’s biggest companies, while wealthy investors think the country is an "unappealing place to start a business, with a culture that’s unsupportive of wealth creators and high levels of taxation".
The Conservative party has pledged to force pensions funds to publicly disclose how much they invest in UK businesses, part of government efforts to spur them to boost investments in UK assets. Defined contribution pension pots will be required to make the disclosures by 2027. Whether Labour, if successful, commit to such requirements remains to be seen.
Former pensions minister Ros Altmann says it is "astonishing" that pension funds are not required to invest anything at all in UK companies, arguing that "it is very easy to justify" offering tax relief in exchange for investment.
Altmann suggests mandating a minimum percentage of new pension contributions to be invested in the UK in exchange for pension tax relief. Perhaps 25 per cent in domestic listed or real assets, which still leaves 75 per cent available for non-UK allocations.
The rationale is theoretically sound, but there remain issues of interference in pension fund investment strategies. Tom McPhail, the lang cat director of public affairs, believes there is little conflict in terms of fiduciary duty, since UK PC offers attractive returns, but it still begs the question about those members approaching retirement who want to be in less risky assets.
Ultimately there needs to be a pragmatic approach to policy that encourages pension funds to support UK growth without penalising those schemes with a more mature, or risk averse membership.
Elsewhere we bring you an article from Rob Gardner, co-founder of Rebalance Earth, the asset manager behind the Rebalance Earth (UK) Nature Restoration Fund, who makes the case for nature as an asset class.
Rather than seeing investment in restoring the worlds’ ecosystems as an altruistic endeavour, Gardner says nature offers economic growth.
Again, pension funds are seen as the saviour of nature, offering the potential to provide the estimated GBP50 to 100 billion needed over the next 10 years to bridge the deficit in nature restoration.
However – as with pushing pension funds toward UK growth – there needs to be clear evidence that nature offers returns as well as restorative benefits.

Gill Wadsworth, Editor, Institutional Asset Manager
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