This blog has been revised.

If you get one thing that changes your outlook from an online event – it should be counted a success, yesterday’s SG Conference on productive finance gave me two

1. The Pensions Regulator is finally catching up with what the DWP wants it to do (regulate changed instigated by DWP policy
2. A good half of pension practitioners are actively opposed to state interference in the investment of pension funds and only one in five unreservedly support Mansion House

Here are the Pension Regulator’s slides

TPR’s new mindset

I find (1) more surprising than (2) though I reserve judgement on TPR – they now speaks with the authority of a regulator which  believes that what it is saying is possible, until we see change in action , we must reserve some judgement.

It’s being rumoured that there is a private consultation on “DB Options” (superfunds) being circulated to key stakeholders. I haven’t seen it but there was certainly new stuff on the table in its keynote

1. The Gateway test will not be amended by TPR but will be addressed by DWP legislation on Consolidators (this needs a Kings Speech Pension Bill to my mind)
2. TPR are reviewing a formula for “capital extraction” so superfunds can get paid. (and dropped the odious phrase “profit extraction” – as noted by one delegate yesterday
3. TPR are reviewing the rules around capital backing ( hopefully to bring them in line with what the DWP  were proposing in their DB Options consultation paper in June.

My feeling is that change is on the way, but whether it is meaningful change and sufficient to create a market for superfunds, we will have to wait and see. I continue to hear that the Clara deal is imminent (any day now). It will be hit and hope.

Pension experts dig their heels in

A poll at the start of the conference suggested just under half (46%) of delegates were opposed to the practical intent of Mansion House, the intent of Government to shift the asset allocation of DB and DC pension funds.

It is braver to say this in open session than from the keyboard but I suspect that this reflects the general view expressed by one of my panellists that pensions are a bad place to take risk.

This of course assumes that all “risk” is bad, which most people do, but it also assumes that pension funds start from a low-risk base,

One of the most telling moments of the conference was when a representative of the  Bioindustry Association pointed out that the pension industry’s pre-eminent risk management instrument – leveraged LDI – turned out to be anything but risk-free.

The reality is that there is risk in everything (it’s how the light gets in). The risks from productive finance are very real, they are to do with valuations, illiquidity, hidden charges, opaque structures and due diligence. All of these risks were explored during the afternoon.

However, as the representative of the Bioindsutry also pointed out, the risk of not investing in productive finance is that projects as various as we heard about from him, Foresight Group, Midland Mindforge and pension schemes such as Clwyd , JLR and Railpen is that not pension schemes not investing in productive finance is a missed opportunity for all concerned.

There is of course the question of whether the timeframes needed to make “patient” capital work to your favour, are available to pension schemes. Extending those timeframes by DC moving to a “to and through” retirement approach (adopting elements of CDC) is one option being explored in the Mansion House consultations. Extending DB Options by encouraging consolidators and covenant plus style Capital Backed Journeys is another.

Accepting that Productive Finance is ultimately about ownership rather than financing is (for me) another. Though much of the sessions talked about private credit and even of gilts as productive finance, the reality is that what is missing from the system is not more debt but more long term ownership of  real assets.

A successful conference

I support Stephen Glover and his online conferences and I’m glad that Blackrock and the other sponsors do to. Some might criticise as ” blatant pitching” sessions from those managing investment into productive finance.  But they are   “fine by me”, I want to know the propositions and make my own judgement.

I learned from the Pensions Regulator and learned from the audience. I know more about the challenges needed to be addressed to win round the pensions industry and I better understand why I so want the Mansion House reforms to be a success.

I hope we will have more of these conferences and that they will be attended by a similar calibre of smart but sceptical people, prepared to give up an afternoon to learn and share experience.