Support For Pension Fund Reforms to Drive Funds to Early-stage Companies

An expert panel created by the British Private Equity and Venture Capital Association (BVCA) to support reforms aimed at directing pension funds towards startup investments. The panel consists of figures from NEST, IQ Capital, and Legal & General, with the goal of addressing structural and technical issues related to enforcing pension reforms announced by Chancellor Jeremy Hunt as part of the Mansion House reforms.

The Mansion House reforms aim to encourage more investment from pension providers into UK businesses. The expert panel, chaired by Kerry Baldwin of IQ Capital, will examine the challenges associated with the plan and propose solutions. The panel is expected to publish a report in the autumn and provide final recommendations to the government.

The involvement of industry leaders from pension funds, private equity firms, and venture capitalists in this panel is seen as a positive sign of support for the Mansion House reforms. The chancellor has endorsed the panel, expressing enthusiasm for the momentum behind the reforms and emphasising the potential benefits for savers and businesses.

The panel’s members include individuals from Unilever UK pension fund, Atomico, and the Business Growth Fund. Additionally, the British Business Bank, a government-backed development bank, recently announced plans to launch a growth fund deploying around £600 million of pension capital into small and medium-sized enterprises (SMEs). This further underscores the efforts to facilitate increased private investment in the UK business sector.

One would have thought that this exercise will require also a revisit of the very significant introduction in 2000 of FRS17, an accounting standard that required company pension funds to calculate the surplus or deficit on their defined-benefit pension schemes each year and disclose any deficit as a financial liability in their accounts just as they would a bank loan or a bond issue.

This had the adverse impact that Company Boards in order to avoid the resulting volatility of balance sheet liabilities, rushed to the door to close defined-benefit schemes, first to new members and then to further contributions. Trustees began shifting assets out of equities — the asset class that historically has delivered the highest inflation-adjusted returns — and into government bonds.

The theory of this “liability-driven” investment strategy was that it was lower risk, but for many pension schemes it came unstuck last autumn when bond prices fell sharply following the UK government’s “mini-Budget”. While pension schemes and sovereign wealth funds across Canada, Australia and Asia have more leeway from regulators to invest in early-stage companies, listed companies and other alternative investment classes.

(Source: UKTN / FT)

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