How a £50bn pension super fund with an appetite for UK innovation could help make the City great again

The UK’s smaller pension funds must pool their assets in a £50bn ‘future growth fund’ or risk more firms shunning London to list overseas, the Lord Mayor of London has warned.

Nicholas Lyons, the Lord Mayor and seconded chair of pensions giant Phoenix, has doubled down on calls for defined contribution (DC) pension funds to pool their assets together and pump more cash into the country’s high growth firms, which he argues will encourage more companies to list in London.

In a new report titled Powerful Pensions, Lyons has called for a consolidation of smaller DC pension schemes which will tackle structural issues on the “size and scale of DC pension pots” and “enable greater risk diversification”.

The calls come after the City has been plunged into turmoil by a slew of companies ditching London’s markets for markets overseas. Arm recently dealt a blow to London’s ambitions to become a tech hub by announcing it would opt for a New York listing, while building supplier CRH said it would swap its listing for New York.

The flurry of firms leaving London has fuelled calls for reform to the UK’s capital markets and prompted City figures to call on pension funds to invest in home-grown companies.

Lyons has been at the head of calls for pension funds to divert more cash into the country’s smaller, private growth investment in the mould of giant Canadian and Australian pension funds.

In a speech planned for the Innovation and Tech Dinner this evening Lyons will say that “the UK is home to some of the most creative and innovative businesses in the world” but they are “struggling to access necessary capital from investors”. 

“The UK has the second largest pension fund pot in the world, but UK pension funds invest less in private equity and infrastructure than our competitors,” he said in a statement this afternoon. 

“We’re missing a trick here – which is leading to the majority of UK pension funds and their scheme members not benefitting from these high growth investment opportunities.”

The new report, drawn up jointly by the City of London Corporation, EY and fintech body Innovate Finance, has called for collective action in the form of a Future Growth Fund, targeting up to £50bn. 

City A.M. revealed talks in January between pension bosses and fintech firms to create the £50bn fund. Tech chiefs have called repeatedly for greater investment from pensions funds into the country’s tech start-ups.

Ministers are currently mulling changes to allow capital locked up in defined contribution pension funds to flow more freely into illiquid assets, which Lyons said will say is a step in the right direction.

He will speak this evening alongside the newly appointed secretary of state for science, innovation and Technology and Brian McBride, President, Confederation of British Industry.