Setting mandatory minimum investment levels for UK assets would be “a huge mistake” from government, delegates at the Pensions and Lifetime Savings Association’s (PLSA) Annual Conference heard.
The government is seeking to drive more pension capital to be invested into UK assets such as private equity, but Paddy Dowdall, assistant director of pensions at the Greater Manchester Pension Fund, warned that forcing this would be “a huge mistake… because the entry point of these things is critical”.
When former chancellor George Osborne sought to stipulate investment in infrastructure for institutional investors, he did this at the end of a huge yield compression making it the wrong time for infrastructure pricing, Dowdall said. He expressed hope that any move into private equity was not similarly timed.
“Implementation shouldn’t focus purely on cost, but costs do come out of your returns,” Dowdall continued.
Despite holding reservations about investing into venture capital and private equity, Dowdall said Greater Manchester had put money into spinouts from UK universities through companies such as Northern Gritstone, an investment fund focused on innovation in the north of England.
Dowdall said he believed such investments would be important to help drive economic growth in the future, but with a structure that allows investors “to have your cake and eat it”.
“We’ve done that through a preferred equity solution,” he explained. “It’s a good solution where the pension fund is getting a lower return than the extreme equity will get, but that return is protected, and essentially, we’ll get paid first.”
The panel discussion looked at putting society’s needs back at the centre of retirement saving policy – and Dowdall argued that the LGPS did just that.
“The LGPS is a defined benefit, relatively high contribution pension scheme, but it does provide pensions for largely transient, low-paid, part-time workforce,” he said.
“The scheme will be providing a lot of people with adequacy – and even comfort – in retirement. And in terms of reach, [Greater Manchester] has 400,000 members who are either active employees, deferred members or pensioners from a conurbation of about three million.”
