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UK chancellor Jeremy Hunt has admitted the government needs to “learn” from its handling of the HS2 rail project, as he sought to attract investment from the British pension industry.
Hunt made the comments in a speech to British pension executives representing the £1.3tn sector who had gathered to discuss barriers to investing in areas such as infrastructure and early-stage British start-ups.
The scrapping last month of the northern sections of HS2 has triggered concerns about policy uncertainty around such long-term projects among pension trustees, who are being asked to consider tying up cash in riskier illiquid assets, such as venture capital and infrastructure.
“We just need to learn from what happened with HS2,” Hunt told the audience at the Mansion House pension summit in London. He added that he was a supporter of high-speed rail but the projected benefit of the project had fallen below £1 for every £1 it was set to cost.
“At one point in that project they were planning to have air-conditioned platforms because they said we want to build the best railway anywhere in the world,” Hunt said. “I just think we need to learn from that . . . we will get it right [on other projects].”
The chancellor’s comments come as he and the City of London step up efforts to encourage pension funds to plough tens of billions of pounds of cash into areas that could drive economic growth. Hunt told the meeting that to unlock investment and improve productivity levels in the UK, private capital would be needed.
He announced that Aon, with almost £5bn of assets, had become the tenth pension group to sign the so-called “Mansion House compact” — a voluntary agreement by some of the UK’s biggest pension companies to commit 5 per cent of their investments to unlisted companies, including private equity and early-stage businesses. The government hopes the initiative will unlock £50bn by 2030.
The venture capital sector — which provides seed funding for start-ups — this week also pledged to look at ways to attract investment from pension funds.
Hunt told the meeting that rules, and trustee “nervousness” about investing in higher-risk — but potentially higher-return — private markets, were holding back investment. These areas typically charge higher fees than the listed assets that pension funds commonly invest in.
“I do think we have over-restrictive regulatory structures for pension funds,” said Hunt, who added that under the current system, trustees were “excessively” focused on cost rather than returns.
“What [pension funds] need to do is develop links with the VC industry to give them the confidence to be able to make those investments that are in the interests of their pension holders,” he said.
The chancellor added that UK “unicorns” — start-ups valued at more than $1bn — were “more likely to be backed by Canadian pension funds than a British pension fund and that is a real wasted opportunity”.
Hunt is considering reforms to stimulate wider pension investment in so-called “productive finance” areas.
“We are here to support you, to listen to you,” he told the summit, adding that he had set a clear deadline “to conclude the policymaking process” by the autumn statement on November 22.
Nigel Peaple, policy spokesperson for the Pensions and Lifetime Savings Association, the sector trade body, said: “It was positive to hear the chancellor’s commitment to maintaining government investment in UK infrastructure projects.”
He added: “Stability in such projects is a key way of attracting pension fund investment in the UK.”
