The most interesting thing of an interesting article by Patrick Hosking in the Times is not that less than 1% of the MP’s contributory scheme is invested in UK equities but that there is literally “no comment” on this from the MPs that are Trustees.
First – the facts. This is a scheme with a high allocation to growth stocks, The Times has gleaned from the scheme’s accounts that 55% of the assets are invested in equities but only £10m of the £772m invested by the Trustees find its way to UK equities.
But only 6 years before , the scheme had £130m in UK equities. There has been a radical sell-off and there must be a reason for this.
Hymans Robertson are the scheme’s investment advisers and likely to highly influential on the asset allocation, but there is nothing from them or the Trustees as to why the sell off.
This is not a political matter . The trustees are politicians but they are not known for strong political views on pensions. The Times tells us
The MPs’ scheme has trustees who are influential figures in both parties, including Harriett Baldwin, the Conservative former chairwoman of the Treasury select committee, and Labour’s Dame Meg Hillier, the former chairwoman of the public accounts committee. The chairman is Sir Brian Donohoe, a former Labour MP.
What comment there is in the article is from Peel Hunt who point out that the lack of UK equities isn’t just a matter of weights in a global equity fund. The scheme’s UK allocation was a mere 2.25 per cent of its total equities pot, while UK stocks account for 3.7 per cent of the MSCI world index.
This is the nub of the story, the trustees seem to have made a conscious investment decision not to invest in the UK and Peel Hunt accuse them of “double standards”.
My view is that whatever the reason not to invest in UK equities, the lack of narrative is a mistake. The last Government was looking to get trustees to voluntarily publish its allocation to the UK markets and explain why the scheme is out of line with typical practice.
In its manifesto this week Labour pledged “to act to increase investment from pension funds in UK markets”
It is unseemly of the Trustees to have no statement to make to the Times. If Rachel Reeves is to create popular support for a national wealth fund, the MP’s scheme, of which she is a member, would be a good place to start.
The Scottish Parliamentary Pension Scheme has 13% of its assets in UK equities. Its main investments are managed by Baillie Gifford.
The Trustees of the Westminster Parliamentary Contributory Pension Fund state in their UK Stewardship Report that they carried out a review of the Fund’s equity structure in 2020. As part of the review, the Trustees considered approaches expected to reduce the carbon emissions intensity of the equity portfolio, reflecting the Fund’s objectives, beliefs and Responsible Investment Policy.
After receiving training on alternative benchmark indices, presentations from industry partners and formal advice, the Trustees agreed to transition the Fund’s index tracking regional equity portfolio to a sustainable multifactor and low carbon index approach. This change is expected to reduce the carbon emissions intensity from the equity holdings by more than 50% relative to the current position.
The transition was expected to be completed in early 2021.
Sometimes you have to look behind the trustees’ annual reports to understand what investment principles and strategies are being followed.
I can’t find an equivalent metric for FTSE UK, but the average carbon bias in the US Russell 1000 is close to 70% and the bias in the MSCI Europe index is about 90%. This means that the carbon intensity of the US and European market indices is 70% and 90% higher than that of the US and European economy, respectively. The carbon bias arises because firms operating in carbon-intensive sectors, such as oil & gas, mining, manufacturing, and electricity, tend to be more capital intensive and more likely to be publicly listed. These companies seem to issue more equity than firms in low-carbon sectors and receive a larger weight in the value-weighted stock market index than in the real economy.
Henry. I think that you have ignored the main role of what ‘a Trustee’ is responsible for. They are required to act in ‘ the best interests’ of the pensions members. That means protecting and getting the best finacial return on any investment that they may make. So, the interest of the members in their belief comes first and that of the Uk is a lower priority. The truth is that in the Uk the quality of running public compoanies by Directors Board is at a such a lower level than the rest of the World resulting in many companies issueing lower and perhaps dergraded dividend whilst bonuses seem to rely on ‘contracts achieved’ rather than meritoral returns.
UK equity markets as a whole still offer higher dividend yields (3.7% on average) than Europe ex UK (3.0%) or North America (1.5%), Peter.
Sorry to be a pedant but page 49 of the 2023 PCPF annual report shows £9.922 million in direct UK equities and £309.486 million in pooled UK Equities.
I make that 40 % in UK Equities.
https://mypcpfpension.co.uk/wp-content/uploads/2024/01/Certificate-of-the-Comptroller-and-Auditor-General-on-Parliamentary-Contributory-Pension-Fund-Annual-Report-and-Financial-Statements-HC-1939.pdf