Leg up for UK listings as Labour backs £50bn pension ‘growth fund’

A Labour government would push pension funds to pump cash into UK start-ups and growth firms as part of plans to boost the City and keep homegrown firms in Britain, Rachel Reeves has said.

Speaking in New York today, the shadow chancellor said her party aimed to rocket-launch investment in the UK by accelerating consolidation of pension funds and allowing capital to flow into smaller private companies via a £50bn future growth fund.

Smaller private companies have typically been shut out of pension fund portfolios in the UK due to the relatively small size of funds. Major pooled pension funds in Canada and Australia “are eating our dinner” on investment, while the US is “having our dessert”, Reeves warned.

Her calls come amid growing pressure from City grandees to channel the UK’s retirement cash into homegrown companies after a sharp slump in the domestic investment of UK pension funds over the past two decades.

Tech firm snubs

Fears have been fuelled by a slew of tech firms snubbing the capital in favour of the US in recent years, where they are seen to fetch higher valuations and be able to tap into deeper pools of capital.

Chipmaker Arm’s decision to opt for for New York in recent months has lit a fire under calls for faster reform to the UK’s tech and investment landscape.

Reeves said her offer to the Square Mile included a framework to de-risk investment for pension funds by allowing funds and insurers to plough in cash alongside the British Business Bank.

Labour said around £2trn in assets sit in the UK’s defined benefit pension schemes and £500bn in DC funds – making them a unique resource of growth capital for businesses.

‘Urgent action needed’

Unlocking just five per cent could equal over £100bn in additional investment, Reeves said, while a culture change in the savings industry would be an urgent priority.

Canada Lord Mayor Nicholas Lyons has led the charge for defined contribution (DC) pensions funds to pool assets and pump cash into high-growth startups on the stock market to allow them to continue to access capital in the UK rather than head overseas.

The shadow chancellor told reporters she wouldn’t rule out forcing pensions to invest in his planned £50bn ‘future growth fund’. “Nothing is off the table,” she told the Financial Times, but stressed it was unlikely mandating the policy would prove necessary, thanks to goodwill.

Lyons welcomed Labour’s backing and said: “The UK is home to the most innovative and high-growth firms in the world, yet too many companies have no option but to access capital from overseas.

“Urgent action is needed to support businesses to start, stay and scale-up in the UK.”

A spokesperson for Phoenix Group told CityA.M.: “There is a significant opportunity for directing greater private sector investment into productive assets in the UK.

“The UK is one of the largest pension markets in the world but, only nine per cent of those assets are invested in productive assets such as infrastructure and venture capital. This compares to 23 per cent in the other major developed pension markets.”

They added: “This represents an exciting and material opportunity for our customers to invest in a broader range of assets with an attractive long term return profile.

“To enable this, it will be critical that there is a pipeline of investable opportunities available for Phoenix to participate in. “