U.K. leaders call on pension funds to invest more at home

U.K. pension funds and other institutional investors should join other countries' investors benefiting from British infrastructure and other long-term investments and rely less on the stock market, said Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak in an open "challenge letter" Wednesday.

"Currently global investors, including pension funds from Canada and Australia, are benefiting from the opportunities that U.K. long term investments afford, while U.K. institutional investors are under-represented in owning U.K. assets," they said, noting that more than 80% of U.K. defined contribution plans are mainly in public securities that represent only 20% of U.K. assets.

"While we are glad that international investors prize U.K. assets, and are working hard to attract even more inward investment, we also want to see U.K. pension savers benefitting from the fruits of U.K. ingenuity and enterprise, being given the opportunity to back British success stories, and secure higher returns and better retirements," Messrs. Johnson and Sunak wrote.

The U.K. government's strategy for recovering from the COVID-19 crisis includes a 10-point plan for a "Green Industrial Revolution" and a new U.K. infrastructure bank to co-invest in green infrastructure.

In September, it plans to issue the first green gilt for institutional investors to help fund the government's green commitments, and this fall plans to unveil a new vehicle for long-term investment, the Long-Term Asset Fund. The U.K.-UAE Sovereign Investment Partnership investing £1 billion ($1.4 billion) in science-based technology sectors could be a model for other investment funds, they said in the letter.

"To seize this moment, we need an Investment Big Bang, to unlock the hundreds of billions of pounds sitting in U.K. institutional investors and use it to drive the U.K.'s recovery," Messrs. Johnson and Sunak wrote. Short of mandating more investment, "the government is doing everything possible … to encourage a change in mindset and behavior among institutional investors, and we remain open to addressing further barriers where they are identified," they said.

"We recognise that there is no single 'right answer' for the amount that should be invested in these long-term asset classes. Some funds are already highly active; some — for good reason — are not, " they said.

"But we strongly believe this is a question that all institutional investors should be considering," they added.

Jack Inglis, CEO of the Alternative Investment Management Association, whose members manage more than $2 trillion in hedge fund and private credit assets collectively, said his group has been part of the government's productive finance working group trying to make it easier for U.K. defined contribution plans to widen their investment choices.

"Investment in less liquid and alternative assets can support good retirement outcomes for U.K. investors, and we welcome the government's recognition of this in the prime minister's letter to the U.K. investment industry," Nick Smith, director of AIMA’s Alternative Credit Council, said in an emailed statement.