I title my blog “AgeWage- making your money work as hard as you do”. Its two big themes are that pensions need to become a replacement wage in later life and that, when funded – they invest with maximum impact.
Vodafone carved out Vantage Towers from its business when it floated the Düsseldorf-based mobile masts provider two years ago. The business is has now unlisted and the list of those who took it private includes the Australian DC Superfund that looks after university staff – UniSuper.
It’s not hard to understand the impact of Vodafone masts, just look at your phone and check the signal. I’m not upset that an Australian DC pension fund owns 5% of the business but I am concerned that not one UK pension fund is listed alongside Vodafone, KKR, Saudi Arabia’s Public Investment Fund and activist Elliott Management as an investor.
The FT tells us that
Another major superannuation fund, Aware Super, opened an office in Europe last year and said it would invest A$16bn there and in the US over the next three years. AustralianSuper, Australia’s largest pension fund, with stakes in the King’s Cross and Canada Water property developments in London, plans to spend £23bn in Europe and the US in the next five years.
The UK DC fund perception of “investment”, is prescribed by the use of fund managers to do the work for the investment officers, I cannot think of one CIO of a UK DC pension fund who would say, as Alison Lee of UniSuper says
“This is a high-quality defensive infrastructure investment with strong fundamentals and growth prospects. It adds to UniSuper’s approximately $15bn private markets portfolio and is positioned to deliver excellent results for our members over the long term,”
I know that the likes of Julius Pursaill would like to but even when Cushon team up with Nest, they do not have the combined clout to take a $660mn position in an infrastructure project of this kind.
Nor does he or Nest’s new CIO Elizabeth Fernando have the audience to boast to. The British public has yet to become aware of the awesome investment power of their savings. But that could change and change soon.
Seven and a half years ago, I sit in a room in the House of Commons and heard, L&G’s CEO Nigel Wilson deliver an impassioned plea to allow workplace pensions to invest in projects such as this “mast business” and tell savers that that was where their money was making a difference. Over 43,000 people have read this presentation since I started sharing it, I hope you will read it too!
For Elizabeth and Julius and other like-minded Chief Investment Officers to do deals such as this , we need the vision of Nigel Wilson and the conviction from Government that our money can work as hard as we do.
How are we doing?
The argument for direct investment of this kind cannot be justified within the confines of how DC is managed in the UK – for all but a few DC funds. Nest, Lifesight, L&G’s Master Trust and People’s Pension all have asset bases in or around £20bn but individually, such a deal is indigestible. I am pleased to see that Schroders are now launching LTAFs which might house such assets on life and custodial fund platforms but the LTAF is itself a layer of intermediation that the Australian Supers are by-passing.
But I see a time, and in the not too distant future, when our large DC funds can compete to be investors in deals such as this, if only the ambition of those regulating and legislating for our large DC funds, encourage them. When Nigel Wilson spoke in 2015, the L&G master trust was yet to become a billion pound fund. The cashflows from auto-enrolment and the consolidation of schemes such as Tesco, has meant his flagship DC scheme could soon fulfil his vision.
This will require more than the current tactical plays to encourage consolidation, the VFM framework, the LTAF fund wrapper and easements in charging legislation. It will mean a wholesale change in attitude amongst those who govern and invest DC money. Necessarily that will mean taking direct positions in opportunities such as this.
It will also mean a much more robust attitude to risk-taking where short-term considerations about liquidity, concentration risk and management fees are exchanged for conviction in the value of the assets purchased.
Finally, it will require a common purpose amongst all the major stakeholders that drive the direction of money invested in our workplace pensions.
Pension’s common purpose
Jim Chambers, the Australian Treasurer has proposed to define in law the purpose of superannuation for the first time, as being to “preserve savings and deliver income for a dignified retirement”.
“A massive pool of pension savings is one of the big things we’ve got going for us,”, he told the FT , adding that it was vital to apply that advantage to benefit Australia’s economy.
We have chosen to ditch an unfunded second state pension (SERPS) for a funded equivalent. That has been at enormous expense in terms of human endeavor. But we are getting there. Britain needs a payback for the hard work it has put in.
We too, need to adopt a common purpose for the workplace pension system. It must preserve savings and deliver income for a dignified retirement and it must apply itself to the advantage of our economy. These two aims need not be incompatible. We can deliver to the needs of savers, not just to the enrichment of fund management.
What is more, we can create an excitement around the investment of our savings, that can allow Julius and Elizabeth to get as excited as their Australian counterparts!
The dissatisfaction with “funds” is not a new concept others have been finding alternatives for decades There are even more innovative long term investments to be found you can find good examples by searching for reports on foreign direct investments. An example from today
“ As the race to attract investment in green technologies gets tougher, Canada has become the latest historically free-market government to turn to subsidies. The Trudeau administration’s whopping C$14.4bn incentives package to support Volkswagen’s new battery plant in Ontario is, according to Seth’s analysis of fDi Intelligence’s IncentivesFlow database, the largest on record worldwide. Across the Atlantic, I discovered that Essar’s proposed $2.4bn transformation of its Stanlow Refinery into a green energy hub is part of a bigger £30bn plan to decarbonise north-west England’s industrial cluster. Meanwhile at the SelectUSA Investment Summit, Alex spoke with Sarah Friar, CEO of social network company Nextdoor, about….