From the Director 

The pieces of legislation and investment packages introduced by the Government over their first twenty months in office indicate that they have grasped the importance of redirecting a greater proportion of institutional investment back towards the UK and harnessing the trillions of pounds of UK investment capital for social goals and the just transition. 

From the Mansion House Accords, to the Pension Schemes Bill; the Sterling 20 and the recent Mais lecture - the aims are ambitious and long-overdue. 

But that doesn't mean they will work. 

Unless these initiatives are backed by an understanding of the system, the incentives and the linkages of the investment chain, industry behaviours will continue unabated and the Government will fail to move the dial on sustainable growth and getting patient capital to the businesses that need it.

The Chancellor's announcement during the Mais lecture is a useful example of this. Billions of pounds of investment announced into UK tech and AI, but nothing done to stem the flow of our pensions into indexes like the MSCI Global which serves to increase the power of the US tech giants; helping them to buy up nascent tech companies in the UK. 

As John Glen writes for us in his piece this month, "[the investment system] is focused on cost-over-value and on short-term risk that ties the hands of asset allocators and allows pensioners’ capital to pool in areas that fail to benefit their society," and he's absolutely right. 

But we are hopeful that the Government is listening, that new leadership in the PRA can bring fresh energy and that can help to bridge the gap between policymakers, regulators and industry, introduce more long-termism into our investment system and by doing so unlock more capital to benefit savers and society in the UK. 

Ashok Gupta,
Founder and Director of New Capital Consensus

The Policy Landscape: News and Thinking

The Chancellor's Mais lecture - Speaking at the Bayes Business School in March, the Chancellor set out the Government's ambitious £2.5bn programme of investment into UK tech and prevent the drain of UK firms and scientists to the US. A noble goal, and one that the Chancellor is absolutely right to be pursuing. 

She also noted how the UK lags behind many other OECD countries in domestic institutional investment, with a paltry 8% of UK-based institutional capital invested in domestic equities - compared to Canada's 22%. But identifying the problem and approaching the solution in a systematic fashion are two very different things. 

Whilst investment in UK tech and AI is to be applauded, NCC is clear that "without regulatory reform the £2.5bn AI gamble won't pay off". Unless the Government addresses the incentives driving offshore flows, that £2.5bn may be throwing good money after bad. With the "index mindset" pervading asset allocation in the UK, the trillions of pounds of investment capital in the UK will continue to flood to the MSCI Global Index and inevitably, the Magnificent 7, enabling them in turn to buy up nascent UK tech. Did you know that the MSCI Global Index sends more money to Apple Inc. on any given day than the entire UK economy? 

We need to focus on building the architecture that will allow the sentiments set out in the Mais lecture to succeed.

All Change at the PRA - This week, former City Minister and NCC Investment System Council member, the Rt. Hon. John Glen MP, set out what will be on the "to-do list" of the incoming PRA Chief, Katharine Braddick.  Writing for NCC, Glen calls for a new index that unlocks more productive UK investment, a more long-term approach to risk, the establishment of new DB Superfunds, and a UK champion life-insurer. Glen's thoughts were featured and focused on in the POLITICO Financial Services newsletter. One of the key points John makes is the necessity for the PRA to work with the Government to recognise that the nature of "risk" is not homogenous and must not continue to conflate short-term and long-term risk in investment decisions.  Pensions are naturally long-term investment vehicles that have a time horizon that allows for illiquid, ‘patient’ capital to deploy to purposeful companies and projects. But our risk mindset in this country is currently out of kilter with our productive ambitions.  The UK’s prevailing regulatory approaches are based on strict mark-to-market accounting and one-year risk measurement. These naturally push institutional investors towards highly liquid, low-volatility assets, anchoring massive capital pools in government debt at the expense of potentially illiquid but higher-value investments like infrastructure, technology, and growth businesses which create jobs and improve quality of life.

Reports from the Think-Tank world - The Social Market Foundation have anticipated a "pension shock" for Generation X who fall through the gaps from the transition during their working lives from DB to DC, with the potential for this to lead to worsened financial security than previous retiree generations and to shape voters' priorities in this demographic. Their research is highlighted in a recent report. LCP and Frontier Economics explore various questions around government interventions in market failures and the pension system's investment in the UK in a recent paper.

NCC Policy Corner - Building the Mais Lecture Architecture: Superfunds, Buyouts, and Run-On

In his latest blog, NCC's Policy Director, Dan Hedley sets out the structural reforms needed from the Government to unlock the potential of DB and Superfunds to properly invest in the UK and realise better returns for savers and society.

With £1.2tn currently in DB Pension Funds approaching their endgame, ensuring that the sequencing is right to allow that capital to flow to effective places in the UK economy is paramount for the Government. 

Three choices are available to trustees - insurance buy-out, running on the schemes themselves, and consolidating into pension Superfunds. The potential for Superfunds to find a "critical mass" of capital to invest in the left-behind regions of the UK is huge, matched only by the risk of allowing ineffective capital to pool in defensive fixed income portfolios within the Solvency UK-constrained insurance system. 

You can read more of Dan's thoughts here.

NCC in the news

Superfund access is ‘not a free-for-all’ - Bell

NCC Director, Ashok, and NCC's Parliamentary and Media Head, Francis, were recently quoted responding to Pensions Minister Torsten Bell MP with NCC's views on Superfunds. 

Read More

Why the CofE Pension Scheme is making the right choices for savers and society

NCC's Policy Director Dan recently sent a letter to the Financial Times about the strategic direction of the Church of England's pension fund. 

Read More

Your Pension Needs an Effectiveness Screen using Five Simple Questions

Prominent pensions commentator Henry Tapper recently discussed NCC's proposals for an Effectivity Screen and what this could look like in his AgeWage blog.

Read More

What's on the to-do list for the new PRA Chief? - John Glen MP

Writing for NCC, John Glen's 'to-do list' for the new PRA Chief, Katharine Braddick, was featured in POLITICO's Financial Services newsletter.

Read More

Upcoming events:

• Chatham House: On Thursday 18th June we will host a panel discussion in conjunction with Chatham House entitled 'How do we revive investment flows? Lessons learned from the UK Pension Schemes Bill'. The panel will consist of members of the Treasury Select Committee, Work and Pensions spokespeople and our own Director, Ashok Gupta, and will aim to bring a cross-party consensus of the next steps required to improve the investment system. 
  
  

  • The event is indended for financial services and pensions professionals, industry bodies, policymakers, civil servants, trade associations and unions. It will run from approx. 12-2pm and is invite-only. If you are interested in attending please email peter@newcapitalconsensus.org.
    
    

• New Capital Consensus Workshops: NCC is continuing its invite-only series of workshops with partners across industry, academia, policymakers and regulators to help inform our programme and recommendations. This presents a unique opportunity to discuss with often siloed market actors and come to genuine consensus on issues like offshore capital flows, risk transfer and domestic investment incentives. 
  
  

  • If you would like yourself or your organization to be considered for one of these workshops, please email peter@newcapitalconsensus.org.
    
    

• Quoted Companies Alliance Conference: NCC are delighted to announce that Ashok will be joining a panel at the QCA conference on June 4th. Ashok and the panel will be discussing 'Channelling capital into the growth companies that matter' at 9:50am and will examine how we ensure that the flurry of investment initiatives announced by the Government reach the quoted companies that need it most. 

  
  If you are attending the conference, do let us know via email. 

Westminster Update - A round-up of our work in Parliament

Investment Systems Council: NCC met this month with its Investment System Council recently to discuss the legislative landscape and policy horizon in Westminster. This is a cross-party body of MPs adopting a systems-thinking perspective to examine redesigning the UK investment system. Our conversations focused initially on the Pension Schemes Bill, but then broadened to the need for a fresh understanding of the differentiation between long-term and short-term risk amongst policymakers. We look forward to developing our ideas on the non-homogeneity of risk further with our Council (and the benefits to the economy therein). Ad hoc meetings in Parliament: NCC has continued to also have a number of ad hoc meetings with members of parliament and peers to share our insights and facilitate dialogue on investment system reform. These conversations have been especially valuable as the Pension Schemes Bill reaches a crucial stage. We wish to offer our thanks to those who have reached out.  Get in touch: If you are a parliamentarian or staffer and would like to find out more information or arrange a meeting, please email Francis Bell: francis@newcapitalconsensus.org