MAGGIE PAGANO: Could Hunt’s retirement fireworks lead to a major investment for the city and the economy?
You could almost see the sparks fly over Mansion House last night when Jeremy Hunt unveiled a series of pension reforms that have the potential to give the industry a huge boost – earning more for retirees but also investing more for high-growth companies.
It was Hunt’s first appearance as Chancellor at the annual town banquet, where the great and the good gathered to hear the Second Lord of the Treasury and the Governor of the Bank of England deliver their State of the Nation address.
Hunt did not disappoint. Some of the financial sector changes he proposed – building on his previous reforms in Edinburgh – have the potential to be transformative.
While one may deeply disagree with the Chancellor on many aspects of his handling of the economy, he has used steroids in addressing some of the financial sector’s most intractable challenges that affect both economic growth and the competitiveness of the economy. obstruct the city.
There is a mountain of money ready to be invested. The UK has saved £2.5 trillion in pensions, the largest pool of pension money in Europe.
Reforms: Chancellor Jeremy Hunt seeks to address some of the financial sector’s most persistent challenges hampering the city’s economic growth and competitiveness
But the converse is that institutional investors are not investing as much in UK growth companies as their international counterparts are in their counterparts.
Unsurprisingly, UK funds don’t deliver returns as high as some of their peers.
By far the most dynamic of the reforms is the new Mansion House Compact.
It is signed by the UK’s largest funds, representing around two-thirds of all defined contribution schemes, and requires them to allocate 5% of their standard funds to unlisted shares by 2030.
The hope is that this could free up around £50bn of funds for high-growth companies by the end of the decade.
This would mean a huge shift in allocation. Today, these funds invest only about 1 percent of their assets compared to Australia, which pledges up to 6 percent.
Hunt’s other big move was for more capital market reforms. The London Stock Exchange is still the largest stock exchange in Europe – second only to the US in terms of IPOs – but has suffered a major decline in the listing of domestic companies over the past two decades.
To reverse this trend, there will be more listing rule changes and prospectus reforms that – in addition to removing the need to unbundle research costs as required under MiFID II – should also help to smooth the way.
There was another potential firecracker with rumors of new government investment vehicles tailored to high-growth companies, following a model similar to the British Business Bank.
With the best will in the world, most pension funds are terrified of investing in the newest of the latest, so they need some encouragement.
A Cambridge biotech executive tells me he has presented hundreds of funds in the UK and US for his next round of funding.
Most of them are floored by the revolutionary concept of his company, but nervous about investing until now.
Only when domestic companies like his – in the life sciences sector, which Hunt has singled out for dynamic growth – are backed by UK investors will we know if these reforms work. The chancellor should call him.
Big test for BT
There’s also pyrotechnics at BT. The telecom company is on edge because of speculation that Deutsche Telekom, which owns a 12 percent stake, is preparing a takeover. BT’s advisers are working hard and trying to strengthen its defense ahead of a bid.
They’ve done their job. BT shares are down to £1.20 from £4 a few years ago. It is struggling to install a £15 billion fiber broadband network, while also having to cut its heavily syndicated workforce.
And now boss Philip Jansen has let it be known that he wants to leave, and will leave next year.
That hardly helps the mood, giving Deutsche an even stronger argument to pounce. Nor is the prospect of Labor being in power next year, as there is little doubt it would block a foreign bid because of the unions.
The more interesting question is what will this government do if there is a bid? It could block a bid under the latest rules.
After the disastrous takeover of other British infrastructure companies by European buyers, it wouldn’t dare go ahead, would it? Or would it?