The whingeing of the Mansion House Compact


If it wasn’t so pathetic it would be funny.

The senior managers, charged with implementing the Mansion House Compact which means start-ups and scale-ups get long term capital from pension funds, don’t want to play,

The Compact was signed by the CEOs and Chairs of the big insurers and master trusts. It would seem that these big-shots , are pursuing a different agenda than the companies they are in charge of.

I’m reminded of  Joe Strummer’s jibe on policy makers in “Remote Control”,

They’re all – Fat and old – Queuing for the House of Lords

The Middle (aka senior) managers are now moaning that these promises may sound good over a good glass of claret in the Mansion House but they aren’t compatible with with what the insurer has been selling.

Aviva, one of the UK’s largest pension providers, said one important issue was the question of how to introduce unlisted, also known as “illiquid” assets — which are typically more expensive than public assets — to existing “default” funds used by millions of savers.

“This is a problem because it is really hard once you have got someone set up with a scheme to then increase charges,” said Emma Douglas, head of workplace pension savings with Aviva. “It is still early days in terms of how we are going to do this [Mansion House compact]”.

Business sold on the cheap must now being repriced to give value for money, Employers pay consultants to get the cheapest workplace pension amongst their competitors The consultants appear to be sympathetic to this view of value for money.

Laura Myers, partner with LCP, the actuarial consultants, said that higher fees were an obstacle for the market as it sought to meet the Mansion House pact target. “The concerns we are hearing [from pension funds] are that if we put this illiquid asset in our default strategy, our default will be more expensive for members,” said Myers. “They are quite concerned that if they do go ahead with illiquids, and they are one of the first movers, then they could potentially not win business.”

Nest are worried that having to invest in start ups and scale ups is “risky”.

Pension funds are also concerned about investing in riskier assets such as venture capital that the government is keen to see supported as part of its ambition for the UK to become a science superpower. Speaking at an industry conference last month, Liz Fernando, chief investment officer of Nest, the government-backed workplace pension fund, said the fund would not go into early-stage VC as it preferred proven business models

This is like watching a “nursery” horse-race  and backing the winner in subsequent races. It is of course safer to bet on horses that are odds on , but that is not the point of the Compact. Everyone knows that the spoils of horse racing are taken by the owner/breeders and by the people who understand what makes horses winners.

Callum Stewart, once the cheerleader in chief for workplace pensions to invest in illiquid assets seems to have developed a fine line in sententious common places.

“We reserve the right to invest in venture as part of a wider private equity allocation, only if we think it is in the best interests of members,” said Callum Stewart of Standard Life.

Well you don’t say!

Don’t forget Callum that your big boss, Nick Lyons (Chair of Phoenix Life) was the architect of the Compact when City of London Mayor. You’re on a promise , just as all the other signatories are, to actually get your sleeve of VC and PE in place by 2030.

This collective back pedalling suggests that these managers are rather less keen on being held accountable for conviction in their decision making or loss of sales or loss of face and their advisers seem all sympathy with these vapid views.

Having happily promoted the Mansion House reforms in July, the great and the good now see personal and corporate reputations on the line and are looking for the usual sugar-coating of the pill by way of tails we win , heads you lose guarantees from the tax-payer.

Here’s John Chilman, chief executive of Railpen, which invests about £34bn in assets for the 350,000 members of the railways pension scheme.

“The only way to make pension funds really go for this [to invest in the UK] is [for government] to make some sort of first-loss provision or additional incentive to say this is why we are going to share some of the pain on this if it doesn’t work out,”

What marks these middle/senior managers out is that they are not prepared to take any personal risk to their salaries, bonuses, reputation or jobs.

These roadblocks are not new. They have been in place for decades. As my good friend Glesga, points out on X

To get productive finance into pensions , fiduciaries, executives and sponsors of occupational pension schemes are going to have to justify their high salaries by

  1. Selling pensions on value not price
  2. Explaining to customers who’ve bought “cheap and cheerful” – value for money
  3. Researching the market so you pick winners at decent prices
  4. Doing what your bosses promise you are going to do
  5. Quitting whingeing that the tax-payer isn’t bailing you out.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to The whingeing of the Mansion House Compact

  1. jnamdoc says:

    Calls for Gov’t to “share some of the pain on this if it doesn’t work out,”
    Its called tax relief, and not having a failed economy.
    The complete myopic selfishness of pension scheme (managers) is baffling.
    Trustee duties blah blah blah.

    Do we really think that the coming generations will permit a system under which the nations’ tax supported pension schemes (DB and DC) are invested (wrong word – holding) gilts or invested in non-UK assets, supporting greater living standards for the retired with no support or investment for the working people in the UK. They won’t !

    The actuaries initially used their (Wilkie) stochastic model to simplify the ‘explanation’ of pension investment. It is a great failing and intellectual laziness of the profession that it came to universally uses it as their actual investment bible.

    This has led to the catastrophic mis-allocation of capital that is crippling UK investment and productivity with its over allocation to UK Gilts.

    Private sector schemes were invented to prevent the state from having to pick-up the costs of second tier pensions, and they should not be used as vehicles with a dominant function being to support DMO issuances. At what stage (£1trn, or £2trn, or ….) does the actuarial profession consider that schemes should (on a risk adjusted basis) stop channelling funds to the Treasury?

  2. conkeating says:

    I remember Myners well – it contained the following:
    62. The Minimum Funding Requirement (MFR) was a particular focus for the review because of the high level of interest in the issue shown by respondents to the review’s consultation. The review submitted a proposal to the Treasury/Department of Social Security consultation process on the MFR, which argued as follows.
    63. The MFR distorts investment decision-making by its use of a set of reference assets to calculate discount rates for liabilities. Pension funds are not required to invest in these assets, but to do so is the best way of minimising volatility against the funding standard. Nor does the MFR provide effective protection for members of defined benefit pension schemes. Any fixed standard such as the MFR simply records the state of the fund at one point in time, but financial markets and economic conditions change constantly. The fact that the fund has hit a funding target can create a false sense of security. Moreover, by distorting pension fund investment and so imposing direct costs on defined benefit pension funds, the MFR creates very real additional incentives for employers to close defined benefit schemes.
    64. The MFR and all funding and solvency standards focus attention on the wrong question: whether, given certain investment assumptions and methods of calculating liabilities, the value of a defined benefit pension fund’s assets exceeds its liabilities at a given date. This is not the same question as whether or not a pension fund will in practice be able to pay its pensions. That will depend on future investment returns and the investment strategy of the fund, which in turn depends on its maturity, the strength and risk appetite of the sponsoring employer and the views and actions of the trustees.

    The problem of course is that in setting the subsequently introduced accounting and regulatory changes, this advice was ignored, with the all too predictable consequences.

  3. Adrian Boulding says:

    Sadly “Mansion House” type investments aren’t really suitable for DC pensions, so even getting 5% of them into the fund seems to be a real problem.

    But don’t despair, these “Mansion House” investments will work well in the coming CDC master trusts. I’ll happily take lots of them, and I didn’t even get a glass of Mansion House wine! I want them because they will help CDC to far outstrip the performance of plain DC.


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