There is a great deal of political and economic agreement about the source of our economic stagnation.

The agreement is that we are not “growing our own” but sending the beans of economic success to America and elsewhere.

To put it in financial terms, we are incubating great star-ups but failing to grow them in the UK.

2023 has been the year when we developed an economic plan to change that, focussing on the £2.5 trillion pounds locked up in our pensions , as a means of turning our economic potential into economic growth.

The Government has commanded the British Business Bank to get on with organising the funds and its new chair seems clear-headed about his purpose.

He told the FT

The UK should not be an “incubator economy” that builds up new companies only for them to be sold off to overseas buyers

There is a thin line between patriotism and xenophobia and the mood music amongst most pension trustees I speak with , aligns fiduciary duty with the globalisation of their pension assets. Investing in the UK for the sake of the UK is not part of ESG but perhaps it should be.

If we take that “S” as standing for “social”, isn’t it rather anti-social of pension funds to park money in overseas equities when the growth of our start ups is being hi-jacked by foreign investors?

Ros Altmann and I are on the same page

And shouldn’t the people who complain that pension funds are a source of inter-generational unfairness, consider how pension funds could be used to provide economic advancement in the UK, for generations to come?

The supply chain for growth

Britain is very good at starting companies and sponsoring early-stage growth. SEIS , EIS and Venture Capital Trusts (VCTs) consume the wealth of entrepreneurial private investors with generous tax hand-outs to reward their early-stage involvement.

The problem comes when these companies want to expand further through listing on a stock market or getting serious private investment (private equity). This is where the companies we and our taxes groom, get in bed with overseas equities, through overseas stock markets. These home-seeded companies only become investable by our pension funds when their operations and listings are domiciled abroad.

The supply chain for growth is stymied because of the weakness of the UK stock market and this has become a scandal. We have literally thousands of investment companies that could and should be buying up young businesses and offering them to pension funds within listed investment trusts. But these trusts are in the doldrums, their assets trading at a substantial discount to their stated valuations. They are unloved and unpurchased and they neither have the liquidity or the confidence to step up to the plate.

Part of this problem is being fixed by the noble efforts of Baroness’ Altmann and Bowles, busy removing regulatory barriers to their marketability. But the more fundamental problem is that no new investment companies are coming to the market and those who are listed, show precious little wish to reform themselves. The majority of them seem more interested in assisting the portfolio careers of their boards than growing the economy.

The FT reports that

almost 5,000 high-growth UK companies have been sold in the past decade to corporate buyers such as French pharmaceutical group Sanofi and US payments group Visa, according to analysis by data provider Beauhurst and investment manager Charles Stanley.

So as well as the well documented purchases of these companies by private equity, many more are simply absorbed into US and European listed companies. Add these to those listing on European Bourses and American stock exchanges, you see why the UK stock market is shrinking at an alarming rate

The problem is made even worse by the Statement of Investment Principles adopted by most of our leading pension schemes. As reported earlier this week ,many trustees find themselves in a “push-me, pull-you” situation where their instinct to invest in the UK is restrained by SIPs that demand they invest according to “market weights”. As UK stock markets decline, so do the market weights of our pension funds in UK equities, today the average pension fund invests only 4p in every pound in the UK stock market.

What can be done?

There is a job to be done by regulators and I’m pleased to see that the FCA has got its mojo back and is actively looking to disrupt the cosy world of our secondary stocks (in particular the investment companies dozing in the FTSE 250). It warns that there will be casualties, let’s hope so, gardens are the better for weeding.

There is a job to be done talking with savers about necessary risk. We cannot persist with investment products that de-risk half way through the investment process. BlackRock’s Lifepath default pension fund starts “taking risk off the tables” once savers get into their forties, half way through their working careers and half way through their lives. We have to think of keeping risk on for longer.

There is a job on for those who fund, sponsor, manage and oversee our pension funds (whether DB of DC) so that they are organised around the S in ESG and contribute back to the Society that funds them. Our taxes (£70bn of them next year) pay our pensions and they should not be incubating growth overseas at the expense of jobs and prospects in the UK. Our pension funds should wake up and make their own coffee.