Last week the Mansion House Accord was signed. Seventeen pension schemes have agreed to allocate at least 10% of direct contribution funds to private markets by 2030. They think this should be about £50bn in total and at least half will go to the UK. Allocations are subject to the usual fiduciary duty and Consumer Duty considerations.
A key thing to know is this includes “listed” AIM stocks. It turns out AIM stocks aren’t really listed at all, but “admitted to trading” on AIM. If the company has no other listing on another exchange, it is unquoted.
UK small caps have had a strong rally since early April when Trump announced his 90-day tariff pause, and the AIM index is almost back where it was when the government announced changes to the IHT rules.
Lots of people have been pushing for pension and other reforms to support UK equities. While Mansion House sounds promising, I think it does raise some important questions. I decided to see if I could find any history of UK pension funds being mandated to make certain investments or act in a certain way and what happened when they did.
The first thing I found was “Levelling Up” – Rishi Sunak’s 2022 brainchild to narrow the north south divide, soon followed by cancelling the northern bit of HS2. I had completely forgotten about this, but apparently it is still going under the Labour government – they just don’t call it levelling up anymore.
As part of the original levelling up plan, there was a white paper with a proposal rather than an insistence that Local Government Pension Schemes (LGPS) allocate a minimum of 5% to local projects, looking to get to around £16bn for local development.
It’s a while ago now and things do change, but I spent some time at one of the LGPS schemes and these issues around investing locally came up all the time.
The usual answer is they already do invest locally, but there are constraints. Social housing is high on the list but the one I worked at was not in a heavily populated area, so there just wasn’t many local projects that needed funding.
A neighbouring scheme owned a car park in Derby and managed it themselves. It became infested with a rare weed that was breaking up the concrete, so one of the managers went to B&Q, loaded up his car with weed killer and spent an afternoon spreading it around.
But we did it where we could. We had a long-standing investment in Pace for example – the old set top box tech company, which was based locally, but in 2015 became another UK listed company that was acquired and disappeared to the US. More recently the LGPS pools have become big investors in renewable energy projects in their areas.
Did the LGPS pools allocate 5% to levelling up? Levelling up is unsurprisingly behind its initial targets and the broad answer is no.
The first thing they needed to do was revise their investment strategies to allow them to develop plans – this includes assessing current investment levels, timelines to reach 5% and report back annually. Secondly some of the pools have created vehicles which the projects would sit in, but it is still a work in progress. As with Mansion House, the government has emphasised that the investments should provide returns in line with the fiduciary duty of the funds, though they can include investments with lower returns under existing guidance on non-financial considerations.
A second example is Solvency II – regulatory changes in the insurance industry which released £100bn of capital from insurance companies. Part of the reason for this was to incentivise insurers to invest in certain projects – specifically long-term energy infrastructure and sustainable projects – which would be matched against long term insurance liabilities. However other options are also available to the insurers, such as returning the capital to shareholders.
Has this happened? Again – not so far. The Investment Delivery Forum (IDF) was set up in 2023. This is a group of CEOs from large UK insurers. The UK insurance industry does have extensive investments in UK infrastructure and local development, but I can’t see that any investments have been made so far on this specific initiative – at least not according to their own website. They published a 10 point action plan in July 2024 and are tracking and reporting new investments since the beginning of 2025. The target is to 2030.
Other initiatives are also underway. On Thursday for example the government published a consultation outcome on potential changes to the Competition and Markets Authority (CMA). Essentially they want the CMA to use regulation to support rather than obstruct growth while still protecting consumers and promoting competition.
One of the things that makes investing difficult is you can sometimes learn the wrong lesson from past experience, or learn the right lesson and later try to apply it to the wrong thing.
There are clear differences between some of the past examples I have looked at. Most obviously Levelling Up would be a difficult thing to invest in even if you wanted to – unlike UK equities, whether public or private. Mansion House should be easier to facilitate.
UK equities have done well this year, up nearly 5% as I write, with global equities down almost -4%. It is one of the better performing equity markets, but this hasn’t stopped continued outflows from the sector. This is why the industry is increasingly looking to the government for help, and it’s positive that they have acknowledged this. We all want to hear good news, but let’s see them actually do it.
Robert Fullerton – Senior Research Analyst
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