By Huw Jones
LONDON (Reuters) - Aviva (LON:AV), Legal & General and seven other pension firms intend to invest 50 billion pounds ($64 billion) in unlisted companies by 2030 to help the City of London remain a competitive global finance centre after Brexit, finance minister Jeremy Hunt said.
Under a non-binding agreement, Aviva, Scottish Widows, Legal & General, Aegon, Phoenix, NEXT, Mercer, M&G (LON:MNG) and Smart Pension will allocate at least 5% of direct contribution pension funds into unlisted companies by the start of the next decade.
The so-called Mansion House Reforms seek to deliver an "evolutionary, rather than revolutionary, change in our pensions market, and to strengthen the UK's position as a leading financial centre", the finance ministry said.
Hunt's reforms represent a follow-up to last year's "Edinburgh Reforms" which sought to attract international growth company listings to Britain after its departure from the European Union largely cut off the City's access to the bloc.
"By unlocking investment, we will boost retirement income by over 1,000 pounds a year for a typical earner over the course of their career," Hunt said in excerpts of a speech he was due to deliver on Monday to a gathering of finance leaders.
Only 1% of Britain's 4.6 trillion pounds of pension and insurance assets are invested in unlisted companies, compared with upwards of 6% in Australia.
Within a year, the new plan will target fintech, life science, biotech, and clean technology firms, but exclude property and infrastructure, where huge debts at Thames Water have raised questions about the role of private investors in utilities.
It follows efforts by City of London Lord Mayor Nicholas Lyons to set up a 50 billion-pound investment vehicle to back UK start-ups.
Private equity investments typically offer greater returns in exchange for taking a greater risk, and many pension schemes have preferred to squirrel away cash in safer government bonds.
MANDATORY MERGERS
A new value-for-money framework will make clear that investments by pension firms should be based on overall long-term returns and not simply costs, the ministry said.
Pension schemes which are not achieving the best outcome for members will be wound up into larger, better-performing schemes, the ministry said. There will be plans for a "superfund" regime to mirror the investment firepower of huge schemes in Australia and Canada.
The British Business Bank, which seeks to support lending to small and medium-sized firms, will explore how Britain could set up investment vehicles.
There will also be a public consultation about the feasibility of setting a target of 10%, or an additional 25 billion pounds, for local government pension schemes to invest in private equity by 2030.
"We need more transparency around asset allocation, costs and investment returns from local government pension schemes before taking any far-reaching decisions about consolidation or asset pooling in that sector," Lyons said.
Other proposed reforms include simplifying the prospectuses that companies publish ahead of issuing stocks and bonds.
In a long-awaited move hailed by supporters of Britain's departure from the EU as a "Brexit dividend", curbs inherited from the bloc on share trading would be scrapped, and another disputed EU-era rule on how broker research should be charged might also be removed, the ministry said.
"The plans in relation to research are particularly positive, as they should help to resolve longstanding concerns about the availability of research for SMEs," Norton Rose Fulbright lawyer Jonathan Herbst said.
A new "intermittent trading venue" would provide unlisted private companies with a way of accessing investors.
The ministry also welcomed a report on ways to move to fully digital shares by scrapping outdated paper-based stock certificates.
($1 = 0.7811 pounds)