Future Growth Capital will invest in
The new company – which is currently awaiting regulatory approval – aims to facilitate between £10bn and £20bn of investment into UK and global private markets over the next decade, with defined contribution (DC) schemes a key target market.
Future Growth Capital will launch with £1bn of assets from Phoenix Group, and the insurer said it would add another £1.5bn in commitments to help establish the company.
Funds will be deployed initially through Schroders’ long-term asset fund (LTAF) platform. The FTSE-listed asset manager became the first to launch an LTAF last year, and currently has three in operation with two more slated for launch.
Ultimately, Phoenix said it aimed to allocate 5% of the assets in “relevant savings products” to Future Growth Capital strategies in line with the company’s support for the Mansion House Compact.
Peter Harrison, group CEO at Schroders, said UK private companies were “an untapped universe of investment opportunity”.
“By stimulating investment into our private markets, our partnership will address the multiple challenges of the looming retirement crisis and boosting UK growth,” he added.
“By connecting long-term savers with our country’s most inventive companies, Future Growth Capital will help more people to fund a secure and comfortable retirement, while supporting businesses to grow and thrive right here in the UK. In doing so, we’ll be making the UK an even more attractive place to live, work, retire and invest.”
Chancellor Rachel Reeves also leant her support and was quoted in the launch announcement. She said: “We want pension fund money to work harder for people and the economy. That’s why our pensions review will explore how we can unlock even more investment in the UK economy while boosting pension pots.”
Waving the flag for UK private markets
Future Growth Capital aims to become a “major investor” in UK private markets, according to the launch announcement.
Phoenix and Schroders said their new joint venture would “provide long-term financing for innovative, growing businesses, helping to create jobs and boost the UK economy”.
It would also offer DC schemes and members diversification and potentially higher returns, helping to address pension adequacy issues.
On top of this, Future Growth Capital will also “promote the UK as an attractive private market investment destination internationally and spotlight the many world-leading private companies that we have”, the companies said.
The launch of the joint venture comes after Phoenix backed the launch of an LTAF by Schroders, focusing on UK venture capital and growth equity. The insurer matched a £150m investment from the British Business Bank as part of the government’s LIFTS initiative to put more capital into science and technology companies.
‘Good progress’ on Mansion House goals
Data from the Association of British Insurers (ABI) shows that the 11 signatories to the Mansion House Compact – of which Phoenix is one – are making “good progress” towards meeting their pledges.
One year since then-chancellor Jeremy Hunt set out plans to increase private sector investment into UK “productive finance”, the signatories collectively invest £793m in unlisted equity within default funds.
This was equivalent to 0.36% of total default fund assets, compared to a target of 5%. However, the ABI’s report said the companies had taken steps to increase this level through higher commitments to private equity and improving their operational and research capabilities.
Phoenix’s group CEO Andy Briggs said that Future Growth Capital’s strategies would “play a significant role” in the design of the insurer’s default investment funds.
Eight of the 11 signatories to the compact have begun work on unlisted equity investment projects, including investing in LTAFs. Legal & General launched a private markets LTAF at the start of July that will feature prominently in a new range of target-date funds.
Yvonne Braun, the ABI’s director of policy for long-term savings, said the early progress was “encouraging”.
However, she highlighted that, for many pension schemes, a focus on cost over value remained “the single biggest challenge” to increasing investment in private markets.
“This is acting as a barrier to developing stronger long-term value propositions that deliver better consumer outcomes,” Braun said. “That is why it is absolutely essential to get the value for money framework right.”
Further reading
L&G unveils DC target-date range and private markets LTAF (1 July 2024)
Schemes eager to back government’s infrastructure investment drive (30 April 2024)
Chancellor’s Mansion House pension reforms will ‘unlock £75bn a year’ (10 July 2023)
