Crucial details of the Mansion House Compact on defined contribution (DC) investment remain unclear, Lee Hollingworth says.
Hollingworth - a former partner and head of DC at Hymans Robertson who became head of UK retirement at Franklin Templeton at the end of 2021 - said the raft of reforms announced by Chancellor Jeremy Hunt at his annual Mansion House speech in July aimed to allow UK companies to tap into pension funds to fuel growth.
The reforms included the so-called Mansion House Compact, where nine of the UK' largest pension providers promised to commit 5% of their assets to unlisted equities by 2030.
But Hollingworth said that, while the industry should be thinking about developing the sophistication and diversification of its asset allocation, some of the details of the compact were either "odd" or "unclear".
He explained: "While the announcement of the compact seems a step in the right direction, to get large workplace DC schemes to expand their investment universe and provide greater access to UK companies, lots of details remain unclear."
Hollingworth said it was unlikely this 5% would be invested only in the UK - noting that, given the risky nature of private equity, asset owners would want to diversity their portfolio, including by investing globally not just in the UK market.
And he said that, while the compact calls for an investment in unlisted equities, it was unclear whether this is just private equity or venture capital.
He explained: "If you wanted to ensure there was more capital to growth companies, then providing access to venture arguably would make more sense. This is, however, higher risk than private equity."
Hollingworth said it was also odd that private equity financing had been singled out among all the alternative asset options - noting that private debt could also provide a useful source of financing to growth companies and, while neither infrastructure nor real estate are helping growth companies gain greater access to growth capital, they were both vital for the long-term growth of the UK.
Future developments
Hollingworth also commented on the government's announcement on DC value for money (VfM) and its focus on increasing VfM for members
He said: "The DC market uses cost as a proxy for value which can lead to a detrimental impact on investment strategies. Delivering good retirement outcomes for workplace DC members might not necessarily correspond to the cheapest option. Forcing schemes to be judged on a value basis, such returns net of fees, would provide a better long-term outcome to members."
