Hunt outlined plans over the summer to harness billions of pounds from the pension industry for private investment in the U.K., part of a government drive to kickstart growth at a time it lacks the fiscal headroom to cut taxes or spend. In July, Hunt announced a "compact" with defined contribution pension plans to unlock £50 billion ($60.7 billion) of capital for unlisted equities by 2030 and a consultation on encouraging more of the U.K.'s £1.7 trillion defined benefit funds into longer term, illiquid infrastructure projects.
The goal is to generate billions a year in additional business investment to pull the U.K. into line with European nations and boost productivity. The pushback shows the difficulty Hunt is likely to face in realizing his vision.
The defined benefit consultation closed last month ahead of a likely announcement next month but experts at the EDHEC Infrastructure and Private Assets Research Institute have warned that "defined benefit pension plans in the U.K. should abstain from investing in infrastructure" because opaque valuations make it too risky.
In its response to the consultation, the institute cited the "multi-billion pound loss faced by Thames Water investors" as an example of the hidden risks. It said the "remarkably poor and unreliable" quality of data available to investors was "a major stumbling block" for more private asset investment.
EDHEC has proposed a valuation system that it believes would make infrastructure a more reliable asset class for long-term investors like pension funds. The U.K.'s Financial Conduct Authority is also looking into valuations of private market assets to improve transparency and disclosure.
Hunt is considering a number of other options to create Australian and Canadian style investment superfunds that could finance major British infrastructure. One option under is turning the industry lifeboat, the Pension Protection Fund, into a defined benefit scheme consolidator.
But John Ralfe, an independent pensions specialist, said that would mean shifting the PPF guarantee from the private sector to the taxpayer, which would be difficult politically.
Local authorities are also skeptical about Hunt's plan to consolidate £364 billion of local government pension scheme assets by 2025. The aim is to lower management costs and create bigger pots of money to finance major UK projects, including a doubling of the allocation to private equity to 10%.
Roughly 40% of local government assets have been transferred into pools but a number councils oppose the idea.
