Bailey: Don’t force pension funds into UK assets
Andrew Bailey has warned the government against forcing pension funds to invest in UK assets, saying that while reform to the sector was essential, he would prefer to see it done in a “natural” way.
Treasury ministers have refused to rule out taking measures to make British pension funds allocate a certain share of their vast portfolios to domestic assets, after the sector’s investment in Britain was found to have fallen to record lows.
The heightened political pressure led 16 of the UK’s largest pension investors to sign a voluntary accord in May in which they vowed to allocate at least five per cent of their portfolios into private markets.
But the government has left the door open to mandating megafunds like Aviva and Phoenix Group to back UK investment classes more explicitly, and recently gave itself the power to force funds to invest in domestic assets in its recent Pension Schemes Bill.
The highly contentious move has drawn a fierce response from the industry. Aviva boss Amanda Blanc compared the move to using “a sledgehammer to crack a nut“, and earlier this week Lloyds Bank chief Charlie Nunn equated it to the kind of approach used in communist China.
Bank of England governor Bailey echoed those concerns, telling reporters that even though it was “very important” for pension funds to invest in the UK economy, he would not support the government using legislation to force them to do so.
“I do think that addressing the pension fund question is very important in terms of investment… and we’ve had a low level of pension fund investment in the real economy in this country,” he said. “I think structural changes to the pension fund industry are helpful in this respect, particularly in terms of consolidation.”
“However… I do not support mandating,” he added. “I don’t think that’s appropriate.”
Economic uncertainty harming listings
Speaking after the Bank of England published its latest report on financial stability in the UK, Britain’s most senior central banker also observed that firms were choosing not to list in London and invest in the UK because of ongoing financial and geopolitical instability.
Asked what he made of the dearth of listings and IPOs taking place in London’s stock market, Bailey said: “What we are seeing is firms telling us that as we are seeing a higher level of uncertainty in the world economy, it is causing investment decisions to be delayed.
“That of course can include decisions over whether to raise capital and which markets to raise capital in.
“It is also a theme I pick up when speaking to firms, and that is not surprising as economic theory tells us that since investment decisions are irreversible so as uncertainty goes up you do see delayed investment.”