Progress in boosting UK growth by channeling private pension funds into unlisted companies is being hindered by several barriers, according to a first annual update

released on Tuesday.

In July last year, then-finance minister Jeremy Hunt announced the 'Mansion House Compact' (MHC), wherein nine insurers and pension funds agreed to invest 5% of their direct contribution (DC) pension schemes in unlisted companies by 2030, totaling approximately £50 billion ($64.29 billion). At the time, less than 1% of pension cash was allocated to unlisted equity.

The Association of British Insurers (ABI), responsible for tracking this progress in collaboration with the City of London, reported that by February, only 0.36% of these funds were invested in unlisted equity. This percentage serves as a baseline for future progress measurements, highlighting that efforts are still in their early stages.

Currently, 11 signatories, including Aegon, Aviva, Legal & General, NEST, Phoenix, and NatWest Cushon, hold £793 million in unlisted equity assets within their DC schemes, out of a total of £219 billion in assets.

The ABI noted that while more investments in unlisted equity have been committed, the growth in this area is expected to continue. The recently elected Labour government, which announced on Monday that it faces a £22 billion overspend in the country's finances, has endorsed the compact and initiated a review of pensions to boost private investment.

The ABI highlighted that signatories are developing the necessary expertise, establishing Long Term Asset Funds, conducting research, and preparing to increase their investments in unlisted equity. For instance, Legal & General launched a new fund for DC savers this month, and Aegon plans to introduce private market investments into its largest workplace default fund starting from the third quarter.

However, a significant barrier identified by the signatories is the emphasis among fund trustees and their consultants on scheme costs rather than long-term value. The ABI stressed the importance of implementing a robust 'value for money' framework to address this issue and facilitate greater investment in unlisted equities. Photo by Andreas Lehner, Wikimedia commons.