Schroders and Phoenix Group have unveiled their ambitious new venture, Future Growth Capital, armed with a hefty £1bn starting fund.
This groundbreaking collaboration between the investment powerhouse and the pension behemoths marks a bold move into private markets for the pensions sector, signalling a clear trend in the industry’s trajectory.
“Schroders bring the private markets capabilities, and Phoenix brings the deep pensions participation and a huge base of pensions that have the need,” Schroders’ chief executive Peter Harrison commented on the synergy between the two firms.
Kicking off with an impressive £1bn from Phoenix Group’s coffers, the pension provider is set to bolster the joint venture further by allocating five per cent of its savings products, ramping up its stake to £2.5bn within the next three years.
Yet, Phoenix CEO Andy Briggs believes this is just the tip of the iceberg, stating, “we see five per cent as a starting point,” and suggesting that the recent surge in private market investments is merely the start of a larger trend, as reported by City AM.
“There is clearly a huge need to help savers in the UK navigate to the new world, and we’ve had the Mansion House compact, which I think is the clearest demonstration of that new need,” Harrison added, highlighting the pressing demand for such innovative financial solutions.
While initially comprising only Schroders and Phoenix, Future Growth Capital has its sights set on broader horizons, aiming to attract other financial entities and amass between £10bn to £20bn over the forthcoming decade.
Future Growth Capital is set to invest in a variety of private market sectors, including infrastructure, real estate, private equity and private debt, both in the UK and internationally.
Despite being co-founded by Schroders, other asset managers will be enlisted for assistance.
“Schroders will manage a large part of the assets… but we’re very much keeping the philosophy we’ve had of using best in class asset managers in different areas,” Briggs stated.
While the fee structure of the new group will be disclosed later, Harrison emphasised that fees will be competitive and yield high returns, even when costs are factored in.
“We’re not talking about a two and 20 type private equity thing that most people associate with private markets,” he said, referring to the common practice among private equity managers of charging a two per cent fee plus a 20 per cent performance fee.
Schroders has recently been broadening its reach into the private markets sector with the introduction of its various Long-Term Asset Funds (LTAFs), being the first asset manager to launch such a vehicle.
“We’ve seen really good uptake of the LTAFs more broadly” among institutional clients, Harrison claimed.
Initially, Future Growth Capital will utilise Schroders’ LTAF investment platform, providing investment advice to the fourth and fifth LTAFs planned for launch by Schroders Capital.
Chancellor of Exchequer Rachel Reeves announced today with evident approval: “I welcome today’s multi-billion-pound announcement from Schroders and Phoenix Group, which will ensure that more of people’s pension savings are invested into the UK’s highest growing companies.”
She went on to highlight her ambition for economic engagement, noting, “We want pension fund money to work harder for people and the economy. That’s why our pensions review will explore how we can unlock even more investment in the UK economy while boosting pension pots.”
