Britain’s big pension funds will face a fresh push to invest in the ailing UK stock market under a plan being drawn up by the new Lord Mayor of the City of London to widen the Mansion House compact signed by top investors last year.
Aviva, Legal & General and Scottish Widows were among 11 pension providers that signed the compact last year, committing to a target of investing 5 per cent of their default pension funds, or up to £50bn, in unlisted equities by 2030.
The high-profile accord, brokered by former lord mayor Sir Nicholas Lyons, was aimed at boosting returns for defined contribution pension savers and increasing funding for private companies investing in areas such as infrastructure.
Alastair King, who will be sworn in as the 696th lord mayor on Friday, told the Financial Times he would like to expand the deal to include commitments from big investors to plough more money into UK-listed companies.
“I would really like to push to make sure that there’s a provision in there in relation to investment into UK public markets,” King, an asset manager, said in an interview, adding that he was close to Lyons and wanted to build on his work by asking: “Are we going far enough? Are we going fast enough?”
The lord mayor is the figurehead of the City of London Corporation, the local government of the Square Mile, and lives in Mansion House.
A commitment to investing in UK shares specifically would be a shot in the arm for the ailing London stock market but is likely to be contentious because pension trustees generally have a duty to secure the best returns for customers, regardless of geography.
But like the original Mansion House compact, the commitment would fall short of a binding mandate.
Only 8 per cent of funds in UK defined contribution pensions are invested in UK equities, according to think-tank New Financial, and British pensions invest far less in domestic equities than in other markets such as Italy and Australia.
King, who previously worked as a corporate lawyer at Baker McKenzie before leading several investment businesses, cited its trusted regulatory system and the rule of law as among the UK’s strengths but said its stock market was underperforming.
London has been jolted by a series of FTSE 100 companies moving their primary listings overseas, including betting group Flutter, building materials group CRH and plumbing supplier Ferguson. Packaging company Smurfit Kappa also ditched its London primary listing as part of a merger.
City executives have been trying to combat concerns that London cannot match the valuations and liquidity on offer from a New York listing and to reduce the burden of regulation on UK-listed companies. The rise of private equity has also resulted in fewer companies going public.
“There’s a crack in our shop window in the form of the London Stock Exchange,” said King. “I know that there’s quite a de-equitisation issue across the world, but I think that London suffered a fair amount and I think that it’s time to try to reverse that.”
King — founder and chair of boutique asset manager Naisbitt King, which invests in bonds and offers a private office service to wealthy families — said he would reveal more about his plans at the Mansion House dinner next week.
Together with Rachel Reeves and Bank of England governor Andrew Bailey, he will address City executives at the annual keynote event. But King, 56, added that he would need to work out details with financial services groups and the chancellor.
“The great thing about the Mansion House compact was the fact that it wasn’t just the City talking to itself; it was countersigned by the then chancellor, Jeremy Hunt,” he said. “So I will have to work with the new chancellor, Rachel Reeves, and say ‘what can I countersign?’”
Research by the Association of British Insurers in July found that a year after the compact, its signatories held only £793mn of unlisted equity assets in their default funds, or 0.36 per cent of their total value.
This represented “meaningful progress” and steps taken by the pension providers after the agreement was signed would lead to more capital being deployed, the trade body’s report added.
King, who promised to be “cheerleader in chief” for the Square Mile during his year in office, also called for the removal of stamp duty on trading in UK shares.
“I don’t see why we have stamp duty on UK equities,” he said, referring to the 0.5 per cent levy that raises about £3.8bn a year for the Treasury. “It’s a penalty on investing in the UK public markets.”
King criticised a culture of “safetyism” in the City, saying “regulatory reform and mindset reform” were needed to encourage more risk-taking.
The imposition of a secondary objective by the previous Conservative government on financial regulators to promote the UK’s international competitiveness, rather than solely protecting customers and ensuring stability, had not yet had a real impact, he added.