By Charlie Conchie
The pension industry needs to “tackle questions” about its risk appetite as the government piles pressure on the sector to pump more cash into UK-based companies, the chief of the Financial Conduct Authority has said.
In a speech this morning, FCA boss Nikhil Rathi said it was not for regulators to “direct how schemes invest” but the watchdog was looking to “remove inappropriate barriers” preventing retirement cash from flowing into UK companies.
“We will work with the PRA (Prudential Regulation Authority) and The Pensions Regulator to manage potential risks and support the development of a more positive ecosystem for UK investment,” Rathi said.
“[The] industry also needs to tackle questions about cost, scale, cultural barriers and risk appetite, and how different players in the market work together,” he added.
The comments point to a heated debate in the Square Mile over whether domestic pension funds should be backing more UK-based companies.
Tensions have been ramped up in recent weeks after the Chancellor threatened “further action” to force pension funds to back UK companies and revealed proposals to push pension funds disclose the geographic mix of their investments.
Under the plans, UK-based schemes would have to disclose how much they invest in UK companies and underperforming schemes will be blocked from taking on new members.
However, the measures have proved contentious. Several industry figures have warned that many of the schemes investing in heavily in UK stocks will also be those that are underperforming.
“The chancellor’s pension reforms could well backfire on British business,” said Laith Kalaf, head of investment analysis at AJ Bell. “If league tables for pension fund performance were published right now, they would probably show those with high exposure to UK shares languishing near the bottom.”
Hunt’s plans also come amid a push from the FCA and ministers for the pension industry to shift its focus away from short term costs, which has typically blocked money from flowing into higher charging asset classes like private equity and venture capital.
In a consultation paper last year, then pensions minister Laura Trott said delivering value for “doesn’t just mean low costs and charges” and should also mean that savers “get good value from their investments”.
“Our proposed Value for Money framework, as the Chancellor has said, will refocus scrutiny away from a simple view on short-term fees,” Rathi said in his speech.
Hunt and the City of London Corporation struck a deal with ten of the top pension money managers last year to get more money flowing into unlisted equities and start-ups. Under the so-called Mansion House compact, the firms have committed to investing five per cent of their assets in unlisted equities by 2030.
