Risi Snack’s bid to increase investment in UK infrastructure and technology companies by shifting workers’ pension pots to higher private equity funds benefits financial firms more than savers and the broader economy Investors warn that there are risks posed.
The prime minister Ask To ease rules that prevent workers who are auto-registered for workplace pensions from spending their savings on expensive venture capital and buyout funds.
These funds hold many of Sunak’s assets, but typically impose an annual management fee of more than 0.75% on the annual management fees introduced in 2016 to erode savings with high fees. Prevent
Ministers say that diluting the cap will “level up” the UK economy by freeing more money to invest in long-term infrastructure assets such as renewable energy projects and innovative tech companies. Claim to help towards the goal of.
However, some private-equity executives who are in a position to benefit from this scheme said their value to the wider economy could be limited. “There’s already a lot of capital out there,” said the head of the European infrastructure business of an investment group.
“Looking at renewable assets, everyone wants a share, so there’s no shortage of demand for those assets,” he adds, adding that directing cash from workplace pension funds to the private market is the UK. He suggested that the impact on the economy could be “minor.” Globally, the private equity industry is raising $ 3 trillion in uninvested funds.
The government will discuss the plan, and those who have been briefed on the plan will “find a balance” to encourage investment in illiquid assets without completely removing the fee cap. .. It is not clear if or how the government will guarantee that the additional funds raised will be directed to UK investment.
In large private-equity fund groups, if the cap is raised significantly, executives will “brighten their eyes” with the prospect of “a new capital pocket that these private-market companies can target” and private-equity fund funding. Said the person who procured.
A management fee of approximately 2% can be a source of revenue for the buyout group. Carry interest mechanism, This usually pays the PE fund manager a 20% share of the profit after the first goal is achieved.
However, “Rishi’s goal and [private equity groups]”The person added. “Rishi’s goal is to get investment in UK infrastructure, and the fund manager’s goal is to provide good returns. UK infrastructure offers the highest risk-adjusted returns at the moment. Are you? It’s controversial. ”
Ted Frith, Chief Operating Officer of GLIL Infrastructure, a £ 2.5 billion fund backed by investors, including municipal pension funds, said: [Sunak] I’m trying to change the price limit.
“I don’t feel like I’m running out of cash at this point, but I don’t have a way to fund projects that can meet my investment goals,” he said. The group promotes itself as a low-cost alternative to private equity.
However, other pension funds want to be free to invest in more expensive and illiquid funds. “Such investments could not only boost saver returns, but also support UK growth,” said Aviva, adding that fees need to be carefully balanced with returns.
According to a report released last month, the UK’s Defined Contribution Pension Plan has approximately £ 500 billion in assets. Productivity Finance Working Group..
Most UK worker pension plans use a defined contribution model. That is, the value of the pot is based on the amount paid and the return on investment.
Local council pension funds operate on a defined benefit model and are therefore outside the scope of this rule, with many investing large amounts in private equity funds despite high fees.
Sunak warned pension fee cap plan more help to financiers than savers Source link Sunak warned pension fee cap plan more help to financiers than savers