A UK sovereign wealth fund?

 

One of the reasons infrastructure investment by British pension funds is relatively low, compared with (for example) infrastructure investment by Canadian pension funds, is that the UK's pension fund industry is fragmented: there aren't that many huge pension funds with the resources and appetite to make big long-term investments in new roads, or railways or airports.

And to tell you what you already know, the UK doesn't have a huge sovereign wealth fund, of the sort they have in Norway, much of the Middle East and Asia, keen and able to make massive long-term investments in the gubbins that underpin a nation's ability to grow and create wealth.

The Treasury tried to correct this flaw by encouraging the National Association of Pension Funds to create a so-called Pensions Infrastructure Platform (PIP), which brings together disparate pension funds with a collective interest in putting debt and equity into new British infrastructure.

According to those involved in the PIP, progress in herding the pension funds has been a bit better than might have been expected. It has eight founder members, which will collectively provide about £1bn, and a further £1bn will be raised from other funds next year - with the formal launch scheduled for the first half of 2013.

My understanding however is that Downing Street and the Treasury are engaged on a more ambitious project, to investigate whether it might be possible to create what might be seen as a British sovereign wealth fund.

I have learned that officials are looking at the assorted pension schemes for public sector employees that are funded (to use the jargon), and actually own shares, bonds and other investments, to see whether they could be merged in some way.

For example, in England and Wales, there are 89 local government pension schemes, which collectively owned £148bn of assets, as of April 2012 (according to data supplied by the pensions consultant John Ralfe).

If these funds acted collectively, they would have enormous investing power - and would be quite big enough to make significant investments in infrastructure.

So for ministers, trying to find a way of pooling this £148bn would seem eminently sensible.

And maybe other public sector pension assets could be put into the pot, such as MPs' £426m of pension assets, or the £18bn of miners' pension assets guaranteed by the government, or even the £28.5bn of Royal Mail pension assets that the Treasury acquired this year.

However, there is quite a big obstacle to creating a public sector superfund, which is that each of the separate schemes has its own trust deed and trustees - and getting them to agree to merge would not be easy.

So I don't know whether the chancellor has enough confidence that a big fund can be forged to mention it in today's Autumn Statement.

But the underlying theme of what George Osborne will say today is that it is becoming more and more urgent to unlock resources that could stimulate growth.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
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    Comment number 102.

    #97.ConnorMacLeod
    >>[Re:pensions profit vs safety]"You couldn't be more wrong... If that were the case, pension fund managers would park the money in cash & bonds and do nothing else."

    Indeed. All would be fine, except their bonus - true reason they are not doing it.

    As about hedge funds borrowing from pension funds... I can't see how somebody without a vested interest can say it's a good thing.

  • rate this
    +1

    Comment number 101.

    The trouble with investment into public infrastructure is that I can't see how it would be profitable. If you build a bridge or a road you have a huge up-front cash payment and have to charge tolls to recoup the money which takes decades to turn a profit. Why would pension funds want to invest in these type of projects ?
    That's why in the past, tax revenues have been used to build these.

  • rate this
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    Comment number 100.

    "One of the reasons infrastructure investment by British pension funds is relatively low, compared with (for example) infrastructure investment by Canadian pension funds, is that the UK's pension fund industry is "fragmented:" etc, etc

    Wow, what a 1st sentence! Not sure that I can cope with the rest of the blog.

  • Comment number 99.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
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    Comment number 98.

    The chancellor not sufficinetly confidend a big fund can be forged to mention it in today's Autumn Statement. "Becoming more and more urgent to unlock resources that could stimulate growth."
    Why should we be sufficiently confident when the chancellor is not?
    Why should we "unlock", "merge" or otherwise play around with pension funds?
    Seems risky to me, & there has been enough risk.

  • rate this
    +1

    Comment number 97.

    96.ReformNotRevolution
    "pensions are not supposed to be about profits, but about safety."

    You couldn't be more wrong if you tried. If that were the case, pension fund managers would park the money in cash & bonds and do nothing else.
    As I've also pointed out - stock lending cannot be done long term - there's no long term share devaluation unless the company is badly run by it's management.

  • rate this
    -1

    Comment number 96.

    #94.ConnorMacLeod
    >>"Investing long term in the stock market (as pension funds do) is not gambling

    Thank you very much for your "long term" lending to hedge funds -> devaluation.

    >>"something that generates as good an income"
    That's where _you_ don't understand (or pretend not to), pensions are not supposed to be about profits, but about safety.

  • rate this
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    Comment number 95.

    ConnorMacLeod @94
    "not gambling"

    Hope this is 400ch speaking!

    For those with 'money safe to risk', diversified stock market investment - cutting-out the High Street middle-man - can over long periods trump or match 'safe saving'

    But instinct for safety paid-off for the many 'left behind' by flashily-promoted Person Pension Plans, at-risk from market plunges on the way and at annuity purchase

  • rate this
    +1

    Comment number 94.

    93.ReformNotRevolution

    I don't think you really understand. Investing long term in the stock market (as pension funds do) is not gambling. Trading shares short term like other institutions do is much more like traditional gambling.

    The difference is the timescale - you'd be hard pressed to find something that generates as good an income over the long term as a diverse share portfolio.

  • rate this
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    Comment number 93.

    #92.ConnorMacLeod
    >>"Pension funds MAKE profit by lending shares out..."

    OK, seems like we have reached some agreement :-)

    My pension fund _is_ used for gambling on stock market (you won't agree with "gambling", but there we go).

    The point is, I would rather like my pension invested in some long term project (as suggested in this article) than in stock market.

  • rate this
    +1

    Comment number 92.

    90.ReformNotRevolution
    Pension funds MAKE profit by lending shares out. Shares are only lent out for a limited timespan - days or a couple of weeks at most. IF they are used for shorting it causes a temporary blip in the price. Shorting can actually highlight a badly managed company or someone cooking the books. Blame those who run the company poorly - not short selling as a process.

  • rate this
    +1

    Comment number 91.

    89.Eddy from Waring
    The management fees for pension funds are quite competitive on the most part. The annuity is where you lose most of your money.

    Nationalised companies tend to be very inefficient as they don't have performance targets. Govt would pick up the tab for staff costs + all other running costs & believe me, these aren't cheap. End result would probably be worse

  • rate this
    0

    Comment number 90.

    #84.ConnorMacLeod
    >>"You're directing your suspicion in the wrong areas. High frequency trading is generally used by investment banks and hedge funds [...] speculation"

    Are you saying that pension funds are not involved in lending shares to hedge funds for short-selling?
    If that is the case, can you point out exactly what stops them?

    If not, then they _are_ gambling with my pension.

  • rate this
    0

    Comment number 89.

    85.ConnorMacLeod

    "...The state pension is already nationalised..."

    ===

    It's not a funded scheme. There's no pot.

    I'm writing about a nationalised fund, into which people could transfer private savings, presently subject to no returns but heavy "management fees". There would be economy of scale and also no "high fliers" needing their beloved bonuses.

  • rate this
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    Comment number 88.

    All we need to do now is to allow Private sector workers to contribute to (and benefit from) this mega-fund on the same basis as Public sector workers, and then I might have a chance of a pension that's actually worth something (rather than having to save £100k for a £3k annuity at present). Or am I expected to continue to subsidise my neighbour's retirement?

  • rate this
    +1

    Comment number 87.

    In the end, this is just a way of making investments off the state balance sheet. The LAs would be mad to let this be taken out of their control unless it comes with taxpayer guarantees.

    If the state wants infrastructure investment then either invest directly or provide tax incentives or financing guarantees to the private sector.

  • rate this
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    Comment number 86.

    so currently this money is invested some , and then you are going to take it and place it elsewhere for other investement opportunities

    so what happens to those that are effected by the withdrawel

    and how do you prevent a spainish type situation developing and also

    remember the humber bridge ?

  • rate this
    0

    Comment number 85.

    74.Eddy from Waring

    "Create a nationalised savings bank, whether for pensions or general cash accounts."

    The state pension is already nationalised. Did that protect today's pensioners from being robbed ?
    No
    With the link to inflation removed for so long, the failure to ring fence the funds and the unfair nature of the payout vs the contribution it's almost worthless.

  • rate this
    +1

    Comment number 84.

    83.ReformNotRevolution

    You're directing your suspicion in the wrong areas. High frequency trading is generally used by investment banks and hedge funds who tend to be more inclined towards speculation. Pension funds are more cautious and tend to look at longer term strategy. Because they're judged against the market , high frequency trading tends to be counterproductive for them.

  • rate this
    0

    Comment number 83.

    #81.ConnorMacLeod
    >>"You're confusing pension funds with high turnover trading. Pension funds generally buy large blocks of shares and hold them for longer.."

    OK, I guess "generally" is the key-word here :-)

    >>"That's called investing..."

    Nothing against INVESTING, I'm afraid most of it is speculation these days.

    I wouldn't be so sure our "cautious" pension are not used in High Freq Trading.

 

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