Don’t strong-arm pension funds into UK assets, Abrdn boss warns

British pension funds must not be “strong-armed” by the government into buying UK assets, the boss of Abrdn has warned.
Jason Windsor said proposals to force retirement funds to allocate minimum levels of investment into the UK would be a bad idea. It would be better, he believes, to bring in reforms making the UK more attractive for the world’s savings.
“I’m not in favour of strong-arming investors into anywhere,” he said.
An influential group of City brokers, lawyers and other sell-side professionals is pushing for so-called “mandation”, a new requirement for pension funds to allocate to the UK, and the Treasury has not ruled it out.
Windsor said that there was much more potential investment to be had from outside the UK than from inside: if the UK made itself attractive to global investors “you can be damned sure investment will follow”.
Other institutions, including the £76 billion Universities Superannuation Scheme and the £30 billion Greater Manchester Pension Fund, have also attacked the idea.
Andrew Bailey, governor of the Bank of England, also criticised the plan. In Washington this week he said: “I don’t for a moment support a compulsory allocation of pension money to UK assets.”
A recent report from the City think tank and lobbying firm New Financial claimed that UK pension schemes now only allocated 4.4 per cent of their assets to UK equities, down from more than 50 per cent 25 years ago.
The case for mandation is that pension schemes enjoy huge tax advantages financed by UK taxpayers. The case against is that they might make lower returns and therefore provide smaller pensions than otherwise, or cost corporate sponsors more money.
Windsor’s warning came as Abrdn shares fell by more than 10 per cent after the company disclosed that clients had resumed pulling money from the firm, with a net £3.1 billion extracted in the September quarter.
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The return to a period of client defections came after a relatively benign first half when Abrdn was able to report £800 million of net client inflows.
Windsor, who succeeded Stephen Bird as chief executive in May, conceded that “overall, performance is not where it needs to be”. However, he added that Abrdn was redoubling its efforts to stem the outflows while a £150 million cost-cutting programme was on track.
The latest lost business was from equities clients and from financial advisers using the specialist Abrdn platform, which suffered a net £1.1 billion outflow in the quarter.
Windsor seized on a strong performance in the Interactive Investor division, which serves retail investors directly, saying it won a net £2.4 billion of new business in the quarter.
Total assets under management at Abrdn edged up to £506.7 billion from £505.9 billion at the end of June as rising markets more than offset the lost mandates.
Abrdn, the product of a merger between Standard Life and Aberdeen Asset Management, has for years seen business walk out the door as clients favour passive over active investment and turn away from emerging markets, one of its core strengths.
Mandeep Jagpal, an analyst with Royal Bank of Canada, said the lost business was worse than the consensus expectation of a £1 billion outflow and represented “a step back” in the flow turnaround story. “Although Abrdn has now, at least partially, addressed its cost base, the deterioration in net flows and fee margins have more than offset this self-help attempt,” he said.
Some UK investors were trying to anticipate next week’s budget, Windsor said, for example Abrdn was seeing an uptick in people taking tax-free cash from their pension pots in case the chancellor cracks down on that perk. But the figures were “not massive”, it said.
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Windsor issued a strong warning to the government not to force pension funds into allocating minimum levels of investment into the UK. “I’m not in favour of strong-arming investors into anywhere,” he said.
The UK needed to make itself an attractive place to invest, and “you can be damned sure investment will follow” he said.
Windsor also said there was a lot more potential investment to be had from outside the UK than from inside, adding: “Let’s try and attract investors globally into the UK.”
Some City institutions are lobbying for a change in the rules that would mandate UK pension funds to allocate some of their assets into UK investments or at least London-listed companies.
Windsor also played down expectations that Abrdn was close to being able to extract any of the £800 million surplus from its legacy staff pension scheme. “We’ve not made as much progress as I would have liked,” he said.
Abrdn has been seen as a trailblazer in trying to gain access to the surplus in its defined benefit scheme, but Windsor said the process was complex and the scheme rules “archaic”. “We are still in information gathering mode,” he said, promising an update at the full-year results.
The shares closed down 18½p, or 11.2 per cent, at 145½p.