UK Trends and Developments Contributed by: Dylan Doran Kennett, Michael Jacobs, Stephen Newby and Mark Ife, Herbert Smith Freehills LLP
• Chancellor Rachel Reeves’ November 2024 Mansion House speech, and an accompa - nying interim report, on the government’s pension reforms relating to the creation of consolidated mega-funds, which will mirror the large pension schemes existing in Canada and Australia. The proposal includes a mini - mum size for workplace defined contribution (DC) schemes. The government does not say what the minimum might be, but cites claims that benefits start to arise at an assets under management (AUM) value of GBP25–50 billion. The proposals also include plans to accelerate the pooling of the assets of the Local Government Pension Scheme (LGPS), one of the largest UK public sector defined benefit pension schemes. For context, the LGPS is comprised of more than 80 separate funds managed by independent local authori - ties (an administering authority, or AA), which are now consolidated in eight asset pools. • Committing GBP250 million to a new Long- term Investment for Technology and Science (LIFTS), matched by Phoenix Group for a combined GBP500 million, to establish new funds or investment structure to unlock UK institutional investment into science and tech - nology companies, which was completed in November 2024. • The “Mansion House Compact” , an agree - ment which so far has committed 11 of the UK’s largest DC pension schemes to allocat - ing at least 5% of their default funds to unlist - ed equities by 2030. In alignment with the Mansion House Compact, Schroders plc and Phoenix Group have collaborated to establish Future Growth Capital, the first UK-dedicated multi-asset Long-Term Asset Fund, aiming to connect long-term savings directly to private UK companies, supporting their growth and helping them remain in the UK.
• The establishment of a Growth Fund invest - ment vehicle within the British Business Bank, in addition to the permanent capital base of more than GBP7.9 billion to give pension schemes access to opportunities in the UK’s most promising businesses. • The establishment of a Science and Technol - ogy Venture Capital Fellowship to train up the next cohort of venture capital investors. • Doubling the limit on allocations in private equity investments to 10% for the defined benefit LGPS. The British Private Equity & Venture Capital Association embraced the reforms by launch - ing the “Investment Compact for VC and Growth Equity” (the IC), a voluntary commitment that complements the Mansion House Compact. The IC aims to facilitate collaboration between venture capital and growth equity funds with pension advisers to encourage pension scheme investment in start-ups. There are already more than 100 signatories on board, working with pension funds from October 2023 to spring 2025 to implement and deliver the IC’s proposals and advance the government’s reform agenda. The Lord Mayor of the City of London has also indi- cated his plans to encourage the scope of the reforms to be broadened to include London- listed companies. Some of the Mansion House Compact signa - tories initially expressed concerns over imple - menting the agreement, as reported by the Financial Times. Challenges such as the inevi - table increase in charges following the introduc - tion of unlisted equities to existing default funds, as well as concerns around the appropriateness of the risks inherent in investing in high-growth assets, will need to be carefully considered by the industry. The Pensions and Lifetime Savings Association emphasised that the proposals will
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