By David Milliken
LONDON – Prime Minister Boris Johnson urged British pension fund managers to put more of their clients’ money into illiquid long-term investments in infrastructure and unlisted companies, raising the prospect of fatter management fees as a reward.
Johnson, in a joint letter with finance minister Rishi Sunak, said he wanted a greater share of private-sector investment in British infrastructure and start-ups to be financed by domestic institutional investors.
“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,” Johnson and Sunak wrote to investment managers in a letter released late on Wednesday.
British pension funds rarely invest in infrastructure assets, in part due to regulatory hurdles. Johnson said his government would seek “to remove obstacles and costs to making long-term, illiquid investments in the UK.”
Pension funds from Canada and Australia, as well as sovereign wealth funds from the Middle East and elsewhere, have been big investors in some British infrastructure projects as well as in commercial property.
But British defined-contribution retirement funds – where employees typically decide how much and where to invest – are roughly 80% invested in publicly listed securities like shares.
Older defined-benefit schemes, which guarantee employees a fixed percentage of their former salary in retirement, are usually required by regulation to prioritise certainty of returns and invest heavily in British government bonds.
Currently employer-provided defined-contribution retirement plans are normally limited to charging a 0.75% annual fee.
However, Johnson said the government was working on “reforming the cap on fees that DC funds can charge to ensure that they are not penalised for over-performance”.
The chief executive of the Investment Association, Chris Cummings, said investment managers would welcome being able to offer a wider choice of funds.
“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,” he said
Historically Britain’s investment industry has suffered from mis-selling scandals and high, opaque fees. Many investors lost out in 2019 from the collapse of a fund run by Neil Woodford, one of Britain’s best-known investment managers who invested heavily in unlisted, hard-do-trade shares.
Boosting long-term investment by Britain’s financial sector has been a goal of many British governments.
Johnson’s predecessor Theresa May launched a ‘patient capital’ review in 2016 and previous finance minister George Osborne sought to underwrite private-sector infrastructure loans rather than borrow directly to fund projects.
Typically institutional investors are willing to finance infrastructure projects when they are up and running but are wary of the risk of construction delays and cost overruns.