Yahoo Finance Why pension trustees need to embrace a ‘win-win’ and back British firms
Pension trustees must embrace a “win-win” and begin backing Britain’s homegrown tech companies if younger Brits are to retire with comfortable pension pots, the founding chief of the British Business Bank has warned.
Keith Morgan, who led the state-owned bank for eight years and previously managed the government’s financial crisis-era investment in Northern Rock, has issued a rallying cry for pension money managers to pump more cash into growth companies today amid growing frustration over a lack of domestic investment from UK funds.
“This is a win-win situation,” Morgan told City A.M.. “Because on the one hand, we would all like to see more institutional investment into the UK’s high growth companies. We do punch a long way above our weight in terms of generating these companies.
“The win-win is for those people who might be young adults now – if there was an allocation into some of these higher growth areas, by the time they reach their pension age, their pension will be worth more,” he added.
The comments chime with a major government push to divert more pension money into both the public and private markets amid fears that Britain’s high-growth tech companies are being forced to look overseas for funding.
The Chancellor Jeremy Hunt and then-Lord Mayor of London corralled ten of the UK’s top pension money managers to commit to investing five per cent of their assets into ‘growth’ companies by 2030 in a bid to fill a hefty funding gap in Britain
The Treasury said at the time the change could deliver an additional £1000 to UK savers’ pension pots by the time they retire. Shadow Chancellor Rachel Reeves even floated the idea of forcing UK retirement funds to allocate five per cent of their assets into growth companies.
Such a move has triggered pushback among pockets of the pension industry, where fears have grown that money managers are being urged to act outside their members’ best interest and invest for the good of the market.
“There is a win-win underlying this whole thing,” Morgan added, “a combination of removing obstacles and creating the roads by which institutions can make these investments, and educating, for example, pension fund trustees around the benefits of this potential investment allocation approach.”
Hunt doubled down on his calls in March and threatened the sector with “further action” if it did not begin boosting its allocation to the UK. Under plans published in the budget, such funds will be required to publish the make-up of their investments by 2027 in an effort to strong-arm them into more domestic investment.
The British Business Bank, formerly led by Morgan, has been central to the government’s plans and was tasked by Hunt with setting up a number of vehicles to pump pension cash into start-ups around the UK.
Investment into private asset classes has largely been blocked due to higher fees charged by many private money managers, which typically exceed a statutory cap placed on pension funds.
The comments from Morgan are likely to add to growing pressure on the industry to begin pumping more capital into start-ups.
Morgan, who now chairs alternative small business lender ThinCats, led the state-backed lender from its foundation in 2012 during the coalition government and steered the bank into becoming a force for small business finance around the UK.
Speaking with City A.M., he claimed the bank had coined the phrase “levelling up” years before it formed a key pillar of Boris Johnson’s 2019 election manifesto.
“We may well have used the phrase levelling up before any government minister because we were also keenly aware that the UK’s capital markets, particularly for small businesses, are very, very focused on the Southeast,” he said.
“There are just as many growth companies in the North of the country as there are in London. Yet, London gets about 50 per cent of the funding compared to companies outside.”
Recent figures from the British Venture Capital Association showed the funding gap between the capital and the rest of the country narrowed last year, however.
Just 47 per cent of the total amount invested into private companies last year went to firms based in the capital, down from 57 per cent in 2022. In 2023, the UK’s private firms attracted £20.1bn of investment, of which £9.5bn went to ventures based in London.