Signatory pension firms are making good progress on ambitions to increase investment in unlisted equities, according to an update published by the ABI.
The update shows firms have laid strong foundations needed to implement the ambition of DC default funds allocating 5% to unlisted equity by 2030.
This follows last year’s Mansion House Compact, which aims to secure better financial outcomes for defined contribution (DC) savers.
The eleven signatories of the Compact currently hold nearly £800m (£793m) of unlisted equity assets in their DC default funds.
This is the equivalent of 0.36% of the total value of these funds (£219bn).
The steps firms have reported taking to ready themselves for progress on the industry-led initiative include hiring, training or forming new partnerships.
For example, 10 of the 11 companies have taken steps to establish or expand their expertise in unlisted equity investment – such as through training or recruitment.
In addition, eight have started developing specific solutions to enable increased unlisted equity investment, such as long-term asset funds (LTAFs).
There seems to be client appetite for such investment too, with the majority (seven of 11) of signatories reporting support for the ambitions among clients.
However, signatories also highlighted barriers to the implementation of the Compact, particularly the focus of benefit consultants and trustees on price rather than value when it comes to scheme selection.
To address this, signatories and the ABI are suggesting a shift in culture towards value as a key policy intervention that would help firms overcome this barrier.
ABI’s director of policy, long-term savings, Yvonne Braun, described the progress as “encouraging”.
“It’s clear that signatories have laid strong foundations to start implementing the ambition in the Mansion House Compact to allocate 5% of their default funds to unlisted equity,” she said.
“Yet it is evident that the single biggest challenge to pension schemes and providers realising this ambition is the overfocus on cost by those selecting schemes.
“This is acting as a barrier to developing stronger long-term value propositions that deliver better consumer outcomes.
“That is why it is absolutely essential to get the value for money framework right.”
The update also provided more context on DC pension fund investments in infrastructure assets, at £5.7bn in default funds or £7bn if broader UK pension and savings vehicles are included.
The Mansion House Compact was announced by the then City of London Lord Mayor, Nicholas Lyons, in July 2023.
It is supported through the Mansion House Forum by the Pensions and Lifetime Savings Association (PLSA) and British Private Equity & Venture Capital Association (BVCA).
The 11 Compact signatories are: Aegon, Aon, Aviva, Cushon, Legal & General, M&G, Mercer, NEST, Phoenix, Scottish Widows and Smart Pension.
