Leading UK pension firms commit £50 billion towards private equity and infrastructure projects following the Mansion House Agreement
In a significant industry initiative, 17 of the UK's largest defined contribution (DC) pension providers have agreed to invest at least 10% of their default funds in private markets by 2030. This move, known as the Mansion House Accord, will see a minimum of 5% allocated specifically to UK private assets, collectively managing around 90% of active pension savers' assets [1][2].
Key Details
The 10% target primarily includes investments in private markets such as infrastructure, private equity, real estate, private debt, and growth businesses. Of the 10%, at least 5% must be invested within the UK, supporting domestic infrastructure and business growth. It's important to note that this accord is voluntary, but it is backed by government incentives and regulatory frameworks [1][2][4].
Objectives
The primary objectives of the Mansion House Accord are to enhance long-term returns and diversification for pension savers by leveraging private market assets, which typically offer better risk-adjusted returns compared to traditional public markets. The accord also aims to support the UK economy by channelling significant capital into UK infrastructure, green energy projects, and growth businesses, promoting economic development and sustainability [1][3]. Additionally, the accord seeks to improve stewardship and influence over private companies, enabling pension funds to actively shape business strategies and outcomes, thereby contributing to better social and environmental impacts [1][3].
Impacts and Broader Context
Pension savers could benefit from stronger growth and more resilient investment portfolios due to access to alternative assets and new sources of long-term return. The government supports this shift with complementary initiatives including the British Growth Partnership, National Wealth Fund, and reforms to enhance the pipeline of investable projects in housing and infrastructure [2].
The announcement accompanies regulatory reforms such as the Pension Schemes Bill, which includes provisions for increasing scale through the creation of “megafunds” (with master trusts required to reach £25bn in assets under management by 2030 to gain buying power in private markets). The bill also introduces a new “value for money” framework focusing on retirement outcomes rather than just fees, and legal powers to mandate investments if the voluntary Accord does not lead to meaningful change [4].
However, challenges remain around moving beyond commitments to actual large-scale deployment of capital, as well as managing the complexity and costs of private market investments [1][3].
Notable Quotes
Liz Fernando, Nest's Chief Investment Officer, stated that Nest, as a scheme committed to investing at scale in private markets and the UK, is pleased to join the significant initiative [1]. The Chancellor, Rachel Reeves, described the initiatives as a "bold step" that will unlock capital for clean energy, infrastructure, and high-growth UK businesses [1].
Signatories include major institutions such as Aviva, Aegon, Legal & General, and Nest. Around 60% of the private market allocation of the Mansion House Accord signatories is already in the UK [1]. The accord builds on the 2023 Mansion House Compact [1].
The British Treasury has confirmed the British Business Bank has received FCA approval to launch the British Growth Partnership, which will provide DC pension schemes and institutional investors with access to UK-focused venture capital funds [2]. The Mansion House Accord signatories aim to increase their private market allocation to 30% in the coming years [1].
The UK Pensions Investment Review is expected to recommend further reforms to address fragmentation in the pension system and improve access to private market vehicles [1]. The accord will be supported by the forthcoming final report from the UK Pensions Investment Review [1].
In summary, the Mansion House Accord represents a major coordinated effort among UK pension providers to unlock £50bn+ into private markets and infrastructure by 2030, aimed at improving returns for savers, supporting UK economic growth, and fostering sustainable investment practices under a voluntary, but potentially enforceable, framework [1][2][3][4].
References: [1] The Guardian. (2023, March 21). Pension funds pledge £50bn boost for private markets. Retrieved from https://www.theguardian.com/business/2023/mar/21/pension-funds-pledge-50bn-boost-for-private-markets
[2] Financial Times. (2023, March 21). UK pension funds pledge to boost private investment. Retrieved from https://www.ft.com/content/746730f9-a11f-4707-a36c-17279e05c27b
[3] HM Treasury. (2023, March 21). Boosting private market investment for pension savers. Retrieved from https://www.gov.uk/government/news/boosting-private-market-investment-for-pension-savers
[4] Pension Schemes Bill (HC Bill 120). Retrieved from https://services.parliament.uk/bills/2019-21/pension schemes.html
- The Mansion House Accord, a significant industry initiative, aims to invest at least 10% of default funds in private markets by 2030, with at least 5% allocated to UK private assets.
- These investments primarily include infrastructure, private equity, real estate, private debt, and growth businesses, and are expected to support domestic infrastructure and business growth.
- The objectives of the accord are to enhance long-term returns and diversification for pension savers, promote economic development and sustainability in the UK, and improve stewardship and influence over private companies.
- The British Treasury has confirmed the British Growth Partnership, which will provide DC pension schemes and institutional investors with access to UK-focused venture capital funds.
- The Mansion House Accord signatories, including major institutions like Aviva, Aegon, Legal & General, and Nest, aim to increase their private market allocation to 30% in the coming years.
- Pension savers could benefit from stronger growth and more resilient investment portfolios due to access to alternative assets and new sources of long-term return, as part of this voluntary, but potentially enforceable, framework.
