An amendment in the House of Lords is a bid to ensure investment trusts, specifically REITs, are not excluded from reforms aimed at increasing investment in infrastructure and real estate as part of the government's Pension Schemes Bill.
The UK government introduced the Pension Schemes Bill in June, establishing a new framework for the Local Government Pension Schemes. The Bill is a critical part of the government's drive to help improve economic growth by mobilising pension capital to increase investment in domestic growth priorities such as UK productive asset classes, including infrastructure, real estate and private equity.
For an analysis of what is proposed in the Pension Schemes Bill click here.
The real estate industry has been urging the government to rethink a decision to block REITs and investment trusts from being beneficiaries of the reforms.
The Bill is being debated in the House of Lords today, and an amendment tabled by Baroness Lady Bowles of Berkhamsted, supported by Baroness Ros Altmann, proposes that investment trusts and REITs are included as "eligible wrappers" to meet the thresholds for qualifying assets under the Mansion House Accord.
According to Financial Planning Today, there has been strong resistance to the amendment. Those against argue that investment trusts are "just buying and selling a financial asset" and do "nothing to put money into the UK economy".
In a submission backing the amendment, the Association of Investment Companies has asked the government to explain the rationale for the exclusion.
Richard Stone, chief executive of the AIC, said: “Given investment companies’ rich experience in investing in private markets, from private equity to infrastructure and renewable energy generation, it is impossible to comprehend why they have been excluded as an option for pension schemes to access private markets.
“We would like to know what the rationale for the decision is, or whether it is based on a misunderstanding. Investment companies provide access to exactly the private markets that the government wants to support, and they give pension funds more choice about how to invest. Yet, as it stands, they are not a permitted option. Why?
“We are not asking for any compulsory investment into investment companies, but simply for them to be a permissible option for pension trustees to consider. We trust the House of Lords Committee will consider this very carefully as their deliberations begin today.”
In a LinkedIn post, Baroness Altmann, a long-term pensions and savings campaigner and expert who has worked for Rothschild International Asset Management and NatWest, says the Bill needs urgent change. She argues that excluding investment trusts and REITs from mandatory asset targets – even if they hold the assets government wants pension funds to support – irrationally favours long-term Asset Funds.
She writes: "The Bill, as it stands, is anti-competitive, favouring largest providers, which does not serve member interests best."
Altmann says the Bill includes "deeply worrying proposals" and focuses on the "irrational, unreasonable exclusion of investment trusts and REITs" from the proposals for mandatory pension investment allocations in productive real assets and private equity.
Altmann says in, particular, the Mansion House Accord requires auto-enrollment pension providers to invest 10% of their main default fund in private equity and real assets. If schemes do not reach these targets the legislation enables the government to force them to do so by law. Altmann describes it as "sinister" that the Pension Schemes Bill and Committee debates have made clear that the government intends to exclude pension funds from using listed closed-ended investment companies as qualifying investments for these targets.
She writes: "This exclusion of investment companies with long-standing portfolios of the very assets the Government wants pension funds to buy, is both irrational and anti-competitive. UK listed investment trusts and REITs have invested billions of pounds in productive assets, alternative energy, real estate, venture capital and more – precisely the assets which the Mansion House Accord requires pension funds to buy."
She adds that it is yet another blow to investment trusts and REITs.
Talking to CoStar News, Altmann added: "Whether it is regulatory restrictions that force misleading cost disclosures, or government measures that effectively deter pension funds from using these ideal potential investments for the Mansion House Accord aims, or hedge funds trying to turn these long-term investment funds of patient capital in illiquid assets into short-term trading vehicles, or competitors/predators seeking to take over assets on the cheap – the sector is being constantly disadvantaged relative to open-ended funds and unlisted assets. These companies have been around for decades, have a proven track record of managing just the kinds of assets that Government wishes to promote and form a significant part of our financial system (one third of the FTSE-250) as well as being a prominent part of the Edinburgh financial success story, serving retail and small institutional investors or family offices well."
Altmann says no coherent rationale has been given for the exclusion, the measure was never consulted on and was never mentioned in the Mansion House Accord.
In her latest Parliamentary speech, Baroness Bowles agreed the Government has not provided a clear, public or specific rationale for this exclusion.
"All the evidence points the opposite way to what the Government has done - and officials have confirmed in meetings that no assessment has been carried out of using listed investment companies, despite the clear steer of policy in the Working group to do so.
"The only explanation ever offered is the phrase 'suitably targeted guardrails' – a phrase that has never been defined, never been evidenced, and never been justified. It appears as an instrument of division and discrimination, only protecting secrets.
"Let’s remind ourselves what we are dealing with here: two collective investment vehicles, each a wrapper holding protected assets or NAV for the pension scheme. There is no coherent reason why one should be favoured over the other.
"Whether by design or accident they have produced a proposal that is without foundation, without evidence and without integrity. It is irrational. It is procedurally unfair. It fails to take into account relevant and public considerations, relying instead on things that are fictional or have never been disclosed. Frankly, I’ve never seen anything like it before."