Government ups pressure on insurers to back infrastructure plans

The Prime Minister and Chancellor of the Exchequer have joined forces to challenge UK institutional investors to invest a greater proportion of their capital in long-term UK assets.

The letter, entitled “Igniting an Investment Big Bang” was sent to all major institutional investors and is a plea to redirect hundreds of billions of pounds held by UK institutional investors to help the UK’s recovery from the pandemic, writes IIE Contributing Editor David Worsfold.

The letter, co-signed by the Boris Johnson and Rishi Sunak, says: “It’s time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth and prosperity across our country.”

They go on to complain that UK financial institutions are not lining up to back their plans: “Currently, global investors, including pension funds from Canada and Australia, are benefitting from the opportunities that UK long term investments afford, while UK institutional investors are under-represented in owning UK assets. For example, over eighty per cent of UK defined contribution pension funds’ investments are in mostly listed securities, which represent only twenty percent of the UK’s assets.”

The letter is littered with the government’s favourite slogans – “Build Back Better”, “Green Industrial Revolution” and “Innovation Strategy” – but is short on substance. It does point to some actions it is taking to remove obstacles to long-term illiquid investment within the UK, by setting up the UK Infrastructure Bank and introducing flexibilities into the cap on fees that defined contribution pension schemes can charge. It says it is also working closely with regulators “to ensure a supportive regulatory environment” – specifically around Solvency II – and cites the Productive Finance Working Group, which is working with the Financial Conduct Authority to launch a framework for a new vehicle for long-term investment, the Long Term Asset Fund.

The government believes these initiatives will ultimately produce better returns over the long-term and urges the investment community to start changing its strategy now: “Whether you are a trustee or manager of a DC or DB pension fund, running an insurance company or advising investors on their investment strategy, we are challenging you this summer to begin to invest more in long-term UK assets, giving pension savers access to better returns and enabling them to see their funds support an innovative, healthier, greener future for their country.”

It concludes with the promise of an Investment Summit in Downing Street in October. The Treasury has no details of when that might take place or who will be invited, although it included supportive statements from Andy Briggs, Group CEO Phoenix Group, Anne Richards, Chief Executive of Fidelity International, and Chris Cummings, Chief Executive of the Investment Association, alongside the publication of the letter. It will not be inviting any sceptics, however, as the letter makes it clear that invitations will only go to “those institutional investors who are willing to make specific commitments to invest more in Britain’s long-term growth”.

Letter from Prime Minister and Chancellor.pdf

 

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