City veteran Archie Norman has hit out at pension funds for not investing enough in UK companies, partially blaming them for the decline of London’s stock market.
Norman, a former Tory MP who now chairs retail giant M&S, told the Financial Times that the drop-off in UK pensions investing in equities had “substantially reduced the depth” of available capital to support domestic stocks.
“Most large corporate pension funds are invested for low risk and low return,” he said. “If they had been invested in index-trackers or… private assets, we would probably have wiped out many pension deficits and created a pool of capital available to invest in British institutions.”
Norman, a non-executive director at private equity firm Bridgepoint, added: “I’m on the board of a private equity firm which is substantially investing in European companies, but our money comes from the large [international] public sector pension and endowment funds.
“They are invested for long-term return, creating a deep pool of capital, a thriving stock market, and the growth of private companies — but this is not happening in the UK.”
Norman’s comments come after the London Stock Exchange (LSE) has been battered by heavy outflows, a dearth of big-ticket IPOs and firms moving their listings abroad for higher valuations and deeper pools of capital.
The Treasury announced in March that pension funds will have to publicly disclose their level of investment in the UK as part of drive to direct more capital to the stock market.
Under the so-called Mansion House compact, the UK’s biggest defined contribution pension schemes have also pledged to invest at least five per cent of their assets in growth companies by 2030.
Norman also noted the decline of corporate share options as another contributor to the LSE’s malaise and criticised the auto-enrolment of employees into company pensions.
“We now have auto-enrolment, so everyone now has a pension scheme, but most have no idea what it’s invested in. We’ve done this when there’s such an opportunity to say to people your savings are invested in British industry,” Norman said.
“We’ve now taxed share options and made the accounting treatment unpalatable for companies [making them less popular]. Wouldn’t it be a good idea if, in a big British company, more of their employees owned shares?”