The FT is currently running a story on how Warburg Pincus and BlackRock dated last year , had a lovely first meeting but couldn’t get into bed with each other. The article is short on detail but says “discrepancies in pay and culture can make integrating such acquisitions complicated“.

It seems however that deals are being done elsewhere , driven by the realisation that fund management has run out of road in terms of public equity. Listed stocks can now be accessed through ETFs , OEICS, SICAVS and Pooled funds at pretty well zero cost, money can be made through stock-lending and market derivatives but this is not enough to keep the likes of BlackRock fully employed. Larry Fink is looking for technology plays and the capacity to do the deals that private equity managers do. It comes down to pay and culture for BlackRock but there are much wider implications for savers.

On the face of it, the internal rates of return that private equity managers earn for themselves, if made available to retail savers and to pensions funds (for instance) could be transformational. This goes not just for shares but for lending too, private credit, when managed well, can produce much higher levels of return (yield) than conventional listed bonds. There are many opportunities in private markets to invest in or lend to infrastructure projects including many that could be transformational for environmental, social and governance reasons. There is a lot of good to be had from the private markets.

The Government recognise this. The Mansion House reforms are the UK Government’s attempt to get retirement savings and occupational pension schemes to invest in productive capital- primarily as equity but also as debt.

We can expect to hear more on this in the new year according to one leading journalist

The UK pensions regulator is expected in January to issue new guidance for pension funds on investing in private market assets.

This follows a Govt push for funds to step up their allocations to illiquid assets, such as private equity and venture capital. #MansionHousePact

— Josephine Cumbo (@JosephineCumbo) December 21, 2023

Getting pension funds to mix private and public equity and debt involves the same cultural problems as BlackRock and Warburg Pincus found. Institutional investors do not like the private market pay and culture much, are reluctant to pay their fees and distrustful of what they see as clandestine practices around market valuations.

TPR’s guidance should be welcomed, if it brokes a partnership that lasts a little longer than BlackRock’s and Warburg Pincus’,

But we shouldn’t underestimate the challenges that exist. “The wet cement of institutional rigidity” that is found in much pension scheme decision making will prove trying to the swashbuckling entrepreneurs who manage private equity and it’s going to take the Pensions Regulator to adopt a new mindset if it is to countenance the risks that are regularly taken to achieve the rewards that private markets bring.

Ironically, many of the sponsors of the occupational schemes that most interest the private market managers are themselves targets for private equity. The congruence between the managers of long-term assets and the fiduciaries of pension schemes, surrounds the time horizons of their outlook. If the two can consider that these outlooks are aligned then some of the problems that beset the aforementioned financial behemoths , may be settled. But there’s a big “if” there.