Lord Jim O’Neill has stated that the merger of local government schemes to establish a large fund could create a disadvantage for small enterprises.
According to Lord Jim O’Neill, a former Treasury adviser, the government’s intention to consolidate 87 local authority retirement funds into one of the world’s largest pension schemes could potentially impede investment in innovative businesses in the northern region of England.
He stated that the Treasury’s establishment of a large fund that exclusively supports large companies could result in the loss of innovative startup businesses, many of which are derived from universities in Manchester, Leeds, and Sheffield.
O’Neill, the chair of the £312 million Northern Gritstone investment fund, expressed concern that the policy could be counterproductive if the merger fails to maintain the local knowledge and commitment to supporting local businesses that are present in the current system.
According to our experience at Gritstone, it is a misconception that local authority pension fund administrators do not invest in British startup businesses, as they have done so. “The large pension schemes are apprehensive about investing in the types of businesses that we advocate for,” he stated.
Over 20 businesses receive financial support from Northern Gritstone, including the Cambridge University-founded chip manufacturer Pragmatic Semiconductor. The company manufactures “flexible chips” for the purpose of tracking products in a factory located near Sedgefield in County Durham.
More than 50% of Gritstone’s funds are derived from individual local authority pension schemes.
Rachel Reeves convened a taskforce of industry executives and ministers from the Treasury and Department for Work and Pensions last month to transform the industry by enhancing investment options and reducing costs. This will enable retirement scheme administrators to increase pension pots by up to £11,000.
The taskforce’s objective is to facilitate the merger of the 87 individual pension schemes in the Local Government Pension Scheme (LGPS) that encompasses England and Wales. The scheme, which manages £360bn in assets and is the seventh largest pension fund in the world, incurs £2bn in fees. These fees could be reduced as a result of a formal merger.
Reeves, who met with pension fund managers in Toronto this month to discuss the creation of a “Canadian-style” model in the United Kingdom that encourages enormous retirement funds to invest in businesses and infrastructure in the United Kingdom, stated that she would enact legislation to abolish local authorities in the event that they were unable to bring about a merger voluntarily.
One of the business people that assisted Labour in formulating its ideas prior to the election was O’Neill, who had previously held the position of head of Goldman Sachs Asset Management and had previously worked as a Treasury minister under the governments of David Cameron and Theresa May.
“In the event that the new fund is modelled after existing large pension plans, it will not invest in commodities such as granite. If I were in charge of the combined fund, I would not do that. What he meant was that the incentive would not be present.
“On the other hand, the fund managers at the Manchester pension scheme felt they had a moral responsibility to support local businesses,” he added. “Even more than that, they wanted to provide a good long-term return for pension savers.”
Duncan Johnson, the chief executive officer of Northern Gritstone, stated that a partial merging of local authority funds into the Border to Coast scheme, which invests on behalf of a variety of local authority funds, has demonstrated how local knowledge may be lost. The Border to Coast scheme is comprised of sixty-four billion pounds.
The Border to Coast initiative does not have a policy on place-based investments. The only thing that matters is that you get a return on your investment,” he explained.
In addition, Johnson issued a warning to the government to provide assistance to colleges after it was discovered that several of them had significant financial gaps.
In order to help the United Kingdom’s efforts to be at the forefront of technology and innovation, he stated that university spin-off enterprises were particularly important. Institutions will slide farther down the world rankings and lose experienced academics to the next generation of “investable businesses” if they do not receive backing from the government.
In order for the new organisation to be able to “invest in a wider range of UK assets while cutting waste,” a spokesperson for the government stated that one of the planned reforms to the pension system in the United Kingdom includes a merging of local government systems. Additionally, if we don’t make enough progress by the end of March, we’ll consider enacting legislation that would mandate pooling.