There used to be the cult of UK equity. Pension funds were to invest in their home country’s businesses so the accrued capital of workers’ retirement holdings was reinvested into capital-creating entities, driving growth and producing return.
This has died out as schemes have simultaneously internationalised and reduced equity holdings.
In some ways, this is unpalatable. The hunger for gilts lets an over-indebted government borrow at ever cheaper levels. Pension funds are willing participants in this country’s crushing debt problem – let’s leave the next generation to work it out – rather than providing its businesses with investment to grow.
But this argument is over, and has been for a while. The latest call for a nationalist approach to investment is reflected in the image of Boris Johnson wielding a brick at the Conservative party conference. He later wrote of his desire to merge public sector funds into a “citizen’s wealth fund” that can invest in roads, railways and airports.
The government has perhaps realised the equation of long-term investors to surefire road-building capital is not as obvious as it seems. Pension funds need certain risk-and-return levels from their investments and often do not want the construction risk that projects can entail.
Illustration by Ben Jennings
Indeed, the jointly launched government-industry answer to all this – the Pensions Infrastructure Platform – has demonstrated the difficulty to be found in getting investment from institutional investors at one end, and finding projects at the other.
Where Johnson is right is his contention that scale is important. It is hard to see how a small pension fund would go toe-to-toe against, for example, one of the big Canadian funds in securing one of the more sought-after projects.
Our leading case study this week demonstrates the London Mayor Johnson will have a tougher time. In a global market, pension funds are just as likely to look elsewhere in the hunt for value.
The government must do more to address the paucity of investable projects, but it is tough to imagine a chief investment officer putting the needs of the country ahead of their membership.
Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.
