Standard Life owner Phoenix Group and global investment manager Schroders have announce an agreement to form a new strategic partnership called Future Growth Capital (FGC).
FGC has been established to promote the aims of the Mansion House Compact, which aims to direct more UK pension fund money into private assets.
The firms said FGC aims to deploy an initial £1 billion and then £10 billion – £20 billion over the next 10 years into UK and global private markets.
They said FGC will, subject to all regulatory approvals, “support the objectives of the UK’s Mansion House Compact, unlocking investment opportunities in private markets for millions of new pension savers to benefit from the diversification and investment return opportunities that unlisted assets can offer.”
Phoenix Group said it intends to invest 5% of its “relevant savings products” on behalf of its policyholders, in line with its Mansion House Compact commitment.
It said this commitment “will provide scale at inception, with ongoing fundraising led by both Schroders and Phoenix Group.”
The companies said: “The new investment manager will design and manage UK and Global multi-private asset solutions for UK insurance and pension clients to open access to a broader range of innovative companies and investment opportunities for millions of UK pension clients.
“Initially it will leverage Schroders’ pioneering Long-Term Asset Fund (LTAF) investment platform, providing investment advice to the fourth and fifth LTAFs planned for launch by Schroders’ dedicated private markets business, Schroders Capital, in the UK.
“A key focus of FGC will be investing on behalf of pension savers to grow the UK’s companies of the future.
“FGC will provide long-term financing for innovative, growing businesses, helping to create jobs and boost the UK economy.
“As a major investor in the UK’s private markets, it will help to develop the UK private market ecosystem and to promote the UK as an attractive private market investment destination.”
UK finance minister Rachel Reeves said: “I welcome today’s multi-billion-pound announcement from Schroders and Phoenix Group, which will ensure that more of people’s pension savings are invested into the UK’s highest growing companies.
“We want pension fund money to work harder for people and the economy. That’s why our pensions review will explore how we can unlock even more investment in the UK economy while boosting pension pots.”
Schroders CEO Peter Harrison said: “The UK’s private companies are an untapped universe of investment opportunity. By stimulating investment into our private markets, our partnership will address the multiple challenges of the looming retirement crisis and boosting UK growth.
“By connecting long-term savers with our country’s most inventive companies, Future Growth Capital will help more people to fund a secure and comfortable retirement, whilst supporting businesses to grow and thrive right here in the UK. In doing so, we’ll be making the UK an even more attractive place to live, work, retire and invest.”
Phoenix Group CEO Andy Briggs said: “For too long, pension savers in the UK have received lower returns than their counterparts in the P7 such as Australia and Canada, partly because the UK allocates much less capital to private market assets than other developed countries.
“By forming FGC with Schroders, it will help us to deliver our goal of giving UK long-term savers a way to invest in a more diversified portfolio with the potential for higher returns, from a broader range of assets.
“This facility will also play a significant role in the future design of our flagship defaults. FGC will be a long-term, patient capital investment manager, constructed to ensure that customer protection remains at its core by taking a blended approach to asset allocation.”
REACTION:
Ashish Patel, Managing Director in Houlihan Lokey’s Capital Markets Group: “This development is a significant step forward, enabling UK pension funds to provide savers with better access to high-quality private businesses while unlocking much-needed capital to finance UK ‘scale-ups’.
“Overseas pension funds (including Ontario Teachers’ Pension Plan and Canada Pension Plan Investment Board) have long been active participants in supporting UK tech firms on their path to international success, yielding impressive results for their investors. We hope that UK pension fund savers will similarly benefit from the venture.
“Overall, the Mansion House Compact has been well received within the venture capital ecosystem, but its true impact will be determined by the extent of investment in early-stage startups, which are already well-supported by tax-advantaged schemes like SEIS/EIS/VCTs, versus growth-stage scale-ups, where a significant funding gap remains between Europe and the US.”