Speaking at the Global Investment Management Summit today (March 29), Nikhil Rathi, chief executive of the FCA said there has been a focus recently on the sharp decline in UK pension and insurance funds investment in UK equities.
He said: “Reasons for a fall in defined benefit allocations from over 50 per cent in UK equities in 1992 to less than 2 per cent today range from changes in the treatment of dividend tax to accounting rules to global economic shifts.
“Overseas investors now own a majority of the UK equity market – this can be both a cause of celebration and, in some quarters, concern.”
With many more fully funded DB schemes bought out and ending up on insurers’ books, this will change the availability of capital over the next decade, Rathi explained.
At the other end of the spectrum, over 90 per cent of those employed outside the public sector save into defined contribution schemes.
He said by 2029, the British Business Bank estimates workplace DC schemes assets under management will reach £1trn, double what it was in 2019.
“The case for pension fund consolidation seems clear cut to enable greater economies of scale, deeper expertise and capacity in investing in a wide range of assets on behalf of UK savers,” he said.
“Ultimately, investors and those acting on their behalf will go where they can get the best returns to meet their objectives, including investing sustainably with appropriate risk diversification and taking account of business environment and currency volatility.
“The UK has to compete for this investment, including from UK pension funds, and cannot just assume it will flow in our direction. That competition is about far more than regulation.”
Regulation is only part of it
While recognising that regulation is only one element to encouraging firms to list in the UK, he said the FCA will always play a full part and was open-minded about reform.
He said regulation – at least alone – cannot create companies of scale in sectors of the future.
“Nor can it help investors better understand how these companies work and their value,” he said. “Nor can it conjure a culture in which success is lauded just as readily as failure is criticised.
“A company’s decision on both whether to list and, if so, where, is driven by a range of factors, including whether staying private or non-listed markets can provide more efficient access to capital.”
