Investment & Pensions Europe: Think tank calls for UK long-term investment vehicles

26 January 2017

The UK government should introduce a new investment structure to foster the creation of large pools of “patient capital”, which would bypass the “complex” process of merging pension funds, a think tank has said.

The proposal is one of six policies the think tank, Tomorrow’s Company, recommended in a report commissioned by the All Party Parliamentary Corporate Governance Group (APPCGG) for input into its submission to the government’s consultation on corporate governance reform.

The think tank also recommended that shareholders in listed UK companies be allowed to designate a certain stake as a “stewardship stake”, which would come with two-year lock-up and other requirements but offer double voting rights on remuneration at AGMs.

Double voting rights exist in some other European countries. The French government, for example, introduced a law in 2014 under which double voting rights are granted to investors who have held shares for two years in a French company, unless this is prohibited by a company’s by-laws.

The think tank envisaged “long-term capital trusts” (LTCT), a new investment structure to pool long-term assets from multiple investors.

It acknowledged the pooling of local government pension scheme assets that is underway and said this goes some way to achieving greater scale, but that “in general, merging pension funds is too difficult to implement more broadly”.

LTCTs, Tomorrow’s Company said, would be regulated closed-end vehicles created by a combination of large UK asset managers and the non-profit entities behind DC master trusts. They should aim to exceed £10bn (€11.7bn) within five years and only a few of these should authorised, so that they achieve sufficient scale.

The investment vehicles that the think tank is proposing are similar to European Long-Term Investment Funds (ELTIFs), but whereas the latter are mainly focused on private equity, infrastructure, and small companies, the target asset class for the LTCTs is UK listed equities.

The think tank said that “it may be useful” for the government to require UK pension funds to allocate a minimum amount to the new entities to “kick-start” the fundraising, suggesting 1%-5%. This could be varied “according to the maturity and liquidity requirements of the pension scheme”, Tomorrow’s Company added.

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