What a lot of rot!
It’s wake up and smell the country’s industrial failure due to lack of investment. Unfortunately we have the lawyers at work to undermine a perfectly sensible future law requiring mega funds to get stuck into investments in British companies whether private or public. This blog has been over this time and again and we’ve had it debated in the Pension PlayPen. Charles Randell is a friend and normally I will side with him but not this time. Here he is in the FT
“The provision isn’t framed as a reserve power and doesn’t promise that there won’t be detriment to pension savers,”
said Charles Randell, former chair of the Financial Conduct Authority.
“This is a pity, given the case for the intervention doesn’t seem to be very convincing in the first place. I worry that this could undermine trust in pension saving.”
Compared with what? Compared with the trust that ordinary people have to a fully diversified investment in global equities and bonds using American index fund managers like State Street, Black Rock and Vanguard?
If we are invested in SIPPs without the buying power of mega-funds, then maybe public listed only is the way, but that’s not what the Government is talking about. Wealth management might better happen in £25bn + funds than in private portfolios.
Private portfolios might please the kind of people who sit in Slaughter and May’s cafe and ample reception but for the kind of people who comprise the majority of our population, the whereabouts of the money they’ve paid in through payroll deductions is a matter for trustees who know what they are doing.
Most people trust “trusts” and most trusts are now invested in a range of equities and bonds that will increasingly become British as we reorganise our capital markets.
GAD is right when it says that investing in Britain is unlikely to manifestly increase returns on saver funds or increase the pensions they get from them, whether invested at home or abroad, the major factors that influence returns are global but to tolerate Britain continuing to lag other nations in the “G7” in productivity because of lack of investment has fundamental problems for people. It means they earn less, contribute less and have to work longer because we are less productive. GET REAL – as the Pension Minister told us in Edinburgh.
The Treasury said the power to set asset allocation targets was “there as a backstop” and added “we do not expect to have to use it because we’re confident that schemes are now moving in the right direction, towards a greater focus on diversification and investment returns for savers”.
Come on Charles, GET REAL, the only advocates of total diversification are Lloyds Bank whose Scottish Widows outfit thinks it will win general consent by returning to the strategies that got Britain in the mess it is right now. Lawyers can argue till they are blue in the face (and at the voting box) but ordinary people want to get involved in putting things right. Charles, like me, is old enough to remember the days when we invested in BT . British Gas and other de-nationalisations. We are a nation of risk-takers when it’s clear that the risk will pay off over time.
My company got 500 investors getting their wallets out and paying me to improve VFM, people will when they see the point.
If we think that the answer to “adequate engagement” in our pensions is to stick the money with an American indexer and claim that diversification is the only free lunch then we ignore the success of the shareholder culture that I grew up with, one where people got a move on like Sid and where the Down-Sayers, said so from the privilidged possession of captured wealth.
The success of the early UK privatisations was largely because of deliberate under-pricing of the shares offered. Sid was more than happy to ‘stag’ these issues taking his profit within hours or days of trading beginning – he was a short term speculator not an investor. Nor can these privatisations be described as ‘investing in Britain” – the seller was the British Government. It is not as if any meaningful sums were raised to develop the businesses. They were an alternate to paying more taxes. Indeed, I can remember subscribing for one new issue which was extremely marginal since my alternative was to pay for the underlying through my taxes (and to my surprise it performed well)
At the end of 2022 to 2023, the market value of Adult ISA holdings stood at £725.9 billion of which around 40% were in cash isss (5 billion in NSI) Whatever happened to the innovative ISA?
Small business employ a significant number of the population surely moving this lazy cash into new small companies and or infrastructure would be worth considering
22 million ISAs, yet only a few thousand ISAs each worth over £1m by now. Maybe a quarter of a million have ISAs worth £250k. Still a very small proportion of the whole.
If individuals had invested the maximum in ISAs since 1999 they would have invested around £325k, so even those “millionaires” have only trebled their total investment in a quarter of a century, although their annualised return on their average investment is probably around 7 or 8% according to the-rule-of-72.
A very skewed distribution (as so often in UK pensions) and presumably the cash ISA proportion has been comparatively low return with possibly lots of small “pot” ISAs and multiple ISAs, started and abandoned, contributing to the overall, poor (at least in my opinion) returns.
Lazy cash indeed.
I fundamentally disagree with you Henry.
The encouragement to invest in a particular asset class encourages the diversion of assets towards that asset class. This is not necessarily in the country’s interest nor does it create new opportunities.
We have seen what happened to UK DB pension scheme assets when Trustees were encouraged (almost mandated) to invest towards an end game strategy. Did the the LDI hedging counter-parties or the insurance companies who gained the upwards of £600BN additional assets contribute more to UK growth than would have occurred had those assets remained in a DB pension scheme over which the sponsoring employer retained a statutory consultation right over their investment.
The same appears to apply to private equity – the vast majority of new private equity investments are not for greenfield long term sustainable infrastructure opportunities, but merely to create a (private) market asset to replace more traditional forms of ownership.
In the US there is very considerable concern over the introduction of private equity into the healthcare sector, replacing sole practitioners, partnerships, mutuals, and charitable foundations. The private equity vehicle with its emphasis on financial profit objectives is resulting in fewer staff being employed, disaffection and increased staff turnover, shorter appointment times with the increased risk of misdiagnosis, and an increased emphasis on the onward “sale” of additional services or drugs, ultimately leading to increased insurance premiums. In the UK it appears the same concerns are being raised over the veterinary sector.
In the UK is the replacement of limited partnerships in the service sector with private equity vehicles anything more than an opportunity for the existing partners to exit with a maximised price? Does this lead to growth or retrenchment?
Once again the UK Government is trying to get pension schemes to do its work for it! If it is serious in wanting to grow the UK economy in both the short and long term it needs to consider creating an environment where an investment in the UK offers better long term prospects. To me the greatest asset of the UK is it’s Human Capital, the emphasis has to be on retaining and encouraging the productive growth of the national resource, by providing an environment where employees are comfortable. That future is not going to be created by more private equity!
The only problem with that is Sid took a short term profit, selling out to America, Gulf States, Eastern Europe and Asia
Where a company is listed and how it’s funded these days seems pretty irrelevant. Arm was listed in the UK, was taken private and is now listed in the US. That’s not changed how the company operates or where its workers reside. By listing in the US and getting a better valuation the company can raise more money to grow its UK based business. It’s effectively a UK company. Its employees are here and its profits are here and it’s owned by a global population of shareholders, many British. What’s being completely ignored in all this discussion on where to invest is that returns on global investments are eventually repatriated to the UK with the money being spent here, paying the wages of UK workers, paying VAT and funding growth in UK companies. The notional value of a share in a company to that company is fairly irrelevant except when a company issues new shares to raise capital.