Torsten Bell is focused on enabling productive investment, by building scale and expanding opportunities
The new pensions minister stressed the importance of productive investment in private markets, to both boost investment returns and support economic growth, in his first speech to PLSA pension scheme members yesterday.
Speaking at the PLSA Investment Conference in Edinburgh, pensions minister Torsten Bell, said: “Why do I focus on enabling productive investment? Because we do so little of it.”
Bell, appointed in January, noted that defined contribution (DC) pension funds allocate just 3% to infrastructure and 0.5% to private equity. These figures compare unfavourably to Canada’s 11% infrastructure allocation and Australia’s 5% allocation to private equity.
He said: “Every percentage point, or part of a percentage point, matters. Where this investment can deliver is not only in returns for savers, but also a contribution to economic growth.”
Bell also recognised that the government has a responsibility to ensure the supply of productive investment opportunities. “It also requires a supply of investable propositions, not just the existence of capital,” he said.
“Across the board, we are working to grow that pipeline and to make it more visible. In June, we’ll set out our 10-year infrastructure strategy. The British Growth Partnership is there to help bring VC investment opportunities to pension funds. Our work with local and regional governments will highlight investable propositions right across geographies.”
The government is also supportive of the trend for pension scheme consolidation, mostly into multi-employer master trusts, and this will also have a positive impact on private markets.
He said: “We want fewer, bigger, better pension schemes, and that is already the direction of travel for a whole host of reasons… Larger schemes are better placed to invest in more productive asset classes.”
Bell said building scale is just one part of “interlocking reforms”, including those to “focus more on value and less narrowly on cost or price”.
While private market funds typically have higher fees than their public equivalents, they may produce superior risk-adjusted net returns.
Said Bell: “Today’s problem is, how do we deliver higher return to savers so they can have a decent standard of living in retirement without asking any more than is necessary of their standard of living in the here and now?”
He also “gently” cautioned the industry that he would like to see lower fees. “Scale is a big opportunity for the industry, but it does have to change how it operates to maximise that,” he added.