Signatories to the UK's Mansion House Compact are making good progress on ambitions to increase investment in unlisted equities, an update from the Association of British Insurers (ABI) has revealed.

The update, produced in partnership with the City of London Corporation, showed that signatory pension firms have laid the "strong foundations" needed to implement the ambition of DC default funds allocating 5 per cent to unlisted equity by 2030.

According to the ABI, signatories of the compact currently hold around £793m of unlisted equity assets in their DC default funds, which is equivalent to 0.36 per cent of the total value of their DC default funds (£219bn).

Whilst the compact is looking to allocate at least 5 per cent by 2030, the ABI noted that firms have taken a number of key enabling steps to ready themselves for progress on the industry-led initiative.

These include hiring, training or new partnerships, with 10 of 11 companies having taken steps to establish or expand their expertise in unlisted equity investment.

Furthermore, eight of the 11 have started developing specific solutions to enable increased unlisted equity investment, such as Long-Term Asset Funds (LTAFs).

For example, Legal and General (L&G) recently launched a fund to give DC savers access to private market exposure, having already integrated this fund into its default options across master trust and group personal pensions.

In addition to this, in June, Aegon announced plans to introduce private market investment into its largest workplace default fund from Q3 this year.

Testing client appetite for such investment has also returned positive signs, with the majority (seven of 11 funds) reporting support for the ambitions among clients.

The update also provided more context on DC pension fund investments in infrastructure assets, at £5.7bn in default funds or £7.0bn if broader UK pension and savings vehicles are included.

However, the ABI’s update also highlighted barriers to the implementation of the compact, particularly the focus of benefit consultants and trustees on price rather than value when it comes to scheme selection.

Given this, signatories and the ABI called for a shift in culture towards value as a key policy intervention that would help firms overcome this barrier.

ABI director of policy, long-term savings, Yvonne Braun, said: “The progress at this relatively early stage is encouraging.

“It’s clear that signatories have laid strong foundations to start implementing the ambition in the Mansion House Compact to allocate 5 per cent of their default funds to unlisted equity.

“Yet it is evident that the single biggest challenge to pension schemes and providers realising this ambition is the overfocus on cost by those selecting schemes.

"This is acting as a barrier to developing stronger long-term value propositions that deliver better consumer outcomes. That is why it is absolutely essential to get the value for money framework right.”

Adding to this, Aegon managing director of investment proposition, Lorna Blyth, said: “The compact has been a catalyst in moving the industry forward and guiding our efforts to improve member outcomes.

“We believe investment outcomes are just one aspect of long-term success and look forward to engaging with the new government’s pension review which should focus on the importance of pensions adequacy, auto-enrolment enhancements and the wider pensions value for money framework."

This article was originally published on our sister title, Pensions Age.

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