Pension providers have invested £1.6bn in unlisted equities in the two years since the Mansion House Compact.
This remains less than 1 per cent of DC assets. Under the terms of this voluntary compact providers aim to have 5 per cent of funds invested in private equity by 2030.
Figures from the ABI shows that pension investment in this asset class has doubled in the past year, but support from employer clients appears to be diminishing. Its research shows just four of the 11 signatories to the Compact reported positive client sentiment, down from seven last year. The ABI says that this is due to a focus on minimising pension and investment costs, rather than maximising long-term value.
This Mansion House Compact was launched in 2023 by the then Chancellor Jeremy Hunt, with signatories committing to invest at least 5 per cent of their DC funds into private equity. This has since been augmented by the Mansion House Accord, where signatories pledged to invest at least 10 per cent of their default funds into private assets more generally, but with half of this in UK opportunities. A total of 17 schemes has signed up to the Mansion House Accord.
The Association of British Insurers (ABI) has tracked progress against the original Accord and shows that that investments into unlisted equities have doubled in the past year, from £0.8bn to £1.6bn. This represents around 0.6 per cent DC pension funds, up from 0.36 per cent the year before.
The ABI said pension providers have taken a number of steps to help them progress towards the Compact’s target. In the last year, the majority (eight) of 11 signatories have established new partnerships with asset managers, with a view to invest in private markets. Meanwhile just under half (five) of the signatories launched a new Long-Term Asset Fund (LTAF) or a similar vehicle with exposure to unlisted equities or signed up to partnerships to offer one.
ABI director of long-term savings policy Yvonne Braun says: “Signatories have taken important additional steps, including making necessary changes behind the scenes, to reach the Compact’s goals. Changes to asset allocations take time, with many steps and approvals before capital can be deployed.
“Having made progress on the early stages in the first year of the Compact, we’re seeing this gain momentum in the second year.”
The ABI says that in order for signatories to deliver the Compact, the entire decision-making chain, from trustees to employers and advisers, needs to transition from a cost-focused to a value-focused approach.
It says this does not appear to be happening, with fewer signatories reporting a positive client sentiment towards increased exposure to private equity holdings. Without this backing, the proportion of capital that can be allocated towards unlisted equities will be limited, it said.
The ABI notes that providers are intensifying efforts to make the case for private market investment with clients, through educational initiatives and public engagement. The Value for Money framework, set to come into force in 2028, is also expected to play a pivotal role in enabling this shift from a a cost to value-based approach.
Braun adds: “While firms are doing what they can to educate and inform clients about the long-term benefits of such adjustment, we need continued policy support and a cultural shift across the entire value chain to value over cost alone.
“We’re working closely with the government and regulators to ensure the Value for Money framework is designed and implemented successfully, and look forward to seeing further progress on this.”
