The UK government is under constant pressure to deliver post-Brexit welfare to the most important financial services sector of Britain, London
Jeremy Hunt announced this Monday, July 10, that nine of the largest pension providers in Britain have agreed to boost their investments in UK companies with high growth potential, most likely blue chip stocks. He hinted that if all the pension funds come together, this increase could lead to a fresh inflow of up to £50 billion ($64.5 billion), a huge relief to the UK economy.
Aviva, Legal & General, and Mercer are a few companies that have promised to set up a provision of 5% of their assets in their default funds for investments in unlisted firms by the end of this decade. The UK has a rule that all pension funds have to offer default funds, where depositors who don’t pick a certain investment plan are by default enrolled in it.
Investments from pension funds will play a pivotal role in these critical times of hyperinflation. The UK is struggling with an investment winter, negligible growth, and skyrocketing inflation. The UK government is under constant pressure to deliver post-Brexit welfare to the most important financial services sector of Britain, London. Tapping the pension funds would greatly assist the economy as per the government.
Hunt said that the growth of British businesses should also benefit British pensioners. Opening another investment inflow will boost retirement income by more than £1000 annually ($1,300) and also provide funds to the economy-driving companies of the UK before his annual Mansion House Speech about the present condition of the economy in London.
Hunt has also announced a plan to formulate rules and regulations to ease the listing process in London. He has disclosed the plans to discard more than a hundred unnecessary retained laws of the European Union.
He wishes for the world’s largest and fastest-growing companies to list on the London Stock Exchange (LSE), making it much more than the Nasdaq of Europe. He wants it to be the global capital of capital.
These statements came at a time when numerous companies listed on the LSE opted for dual-listing their shares or just listing in the United States. ARM, a chip manufacturer company, a key constituent of the technology sector in the UK, tried listing in the US in March and failed miserably.
Edinburgh Reforms
In December last year, the Chancellor of the Exchequer announced a set of reforms to unlock growth and investments in London, which was the worst hit due to Brexit. It consisted of a big list of regulatory reforms, especially for the financial services sector.
Hunt curated his own “Mansion House Reforms,” built upon the Edinburgh Reforms, which aimed to build the United Kingdom a breeding ground for businesses to grow and raise investments. He wishes to divert a collective sum of £2.5 trillion ($3.2 trillion) from the retirement savings accounts of UK citizens.
These reforms would cater to a longer term with the promise that the capital markets of the UK can provide capital for companies seeking investments and other corporations that push innovation, said Julia Hoggett, CEO of the London Stock Exchange.
Tapping Pensions
The United Kingdom sits on the second largest pension market in the world, right after the United States. It only has one problem that differentiates it from the US is the negligible exposure of the pension funds to the capital markets.
Over over two and half decades, stringent regulatory and accounting alterations have decreased the equity exposure from 73% to a meagre 27%. The UK pension funds in the equities markets were at 53% in 1997; it tanked to just 6% in 2021. It instead shifted them from equities to bonds, as per a think tank, New Financial.
A recent report from News Financial estimated that compared with other global counterparts, the UK pension assets have a cumulative investment of just 11% in assets relating to equity stakes like investment in hedge funds, infrastructure projects, or private equity firms, whereas the global average stands at 19%.
Hunt has announced other reforms where all the pension funds would be accumulated for investment projects. This would increase their investment capacity to build up stakes in a wide range of assets and enjoy better returns.
Hunt has announced plans to discuss with pension funds of domestic governments to almost double their investments in private equity 10 10% of their total assets. This has the potential to release £25 billion ($32.3 billion) in the capital markets by the end of this decade. The UK has plans to build the world’s first “intermittent trading venue”. This intends to provide access to public markets to private companies without needing listing.