Pension, super funds to play vital investment role as government money stretched

Private sector capital will play an increasingly important role in long-term investments as governments become financially stretched, says City of London Lord Mayor, Nicholas Lyons.

Private sector capital will play an increasingly important role in long-term investments such as infrastructure as governments globally become financially stretched, warns the City of London’s Lord Mayor, Nicholas Lyons.

He told The Australian during a visit this week that the global pension and superannuation industry would become increasingly important investors in a range of areas from infrastructure projects to funding more start-ups and growth companies.

“It’s time for the private sector to step up and make sure we allocate capital to drive growth in our countries,” he said.

The chief representative of the financial hub of London, who is also chair of the UK pension giant the Phoenix Group, has been in discussions with Australian funds about investing in a new $100bn UK based Future Growth Fund to finance infrastructure, property, renewable energy and start-ups in the country.

He said UK pension funds had been constrained by European Union rules from making big ticket infrastructure investments like those now being made by the big Australian super funds.

Mr Lyons, who addressed the annual conference of the Association of Superannuation Funds of Australia in Brisbane last week, and was leading a delegation of British business leaders to Australia, said he was keen to encourage more investment by Australian super funds through the City of London.

He said the new UK fund, which is being developed by several key players in the London financial sector, would seek to harness long-term capital from the UK and investors in other parts of the world to invest in long-term projects.

He said the fund would seek to invest in long-term assets such as infrastructure and property but would also be investing in private equity projects supporting start-ups and growth companies.

City of London Lord Mayor Nicholas Lyons.

“We are keen to create a Future Growth Fund from pension fund investment which would send a strong message to our early stage companies that we want them to stay and that the capital is available in the UK for them to do so.”

He said having an increasing pool of long-term investment in London would also encourage the UK government and others in Europe to structure more infrastructure investments that could be supported by private capital.

London is becoming an attractive investment hub for Australian superannuation funds, which are investing an increasing proportion of their new inflows offshore.

Australia’s largest super fund, the $260bn AustralianSuper, has more than 70 people in its London office with plans to double it in coming years.

Industry super investment fund IFM Investors also has a sizeable office in the city, hiring private market investments expert and former WTW executive, Luba Nikulina, last year as its chief strategist based in London.

The $150bn Aware Super has announced plans to open a European office in coming months.

Mr Lyons said the mergers between Australian superannuation funds was making them big investors on a global stage.

“There are Australian super funds who are well established in London and others which are merging and up and coming.

“As they become bigger they are realising they have to get out of Australia as the country is too small for the amounts of money going into super funds.”

Mr Lyons said he expected the British economy to look up towards the end of the year.

“By the fourth quarter of the year, we will see inflation coming down,” he said.

“We had a huge spike in energy prices 12 months ago but energy costs are a lot lower now.

“We will still have inflation in the four to 4.5 per cent range and we will probably have a little bit more increase in interest rates.

“In the short term, it will cause a bit of consternation but, beyond that, we should be in calmer waters.”

The general feeling among UK business was that economic problems would cause some job losses and would see some pretty flat economic performance for the next six months, he said.

But after that, he said, the UK would “start to see some recovery in corporate profits.”

“If we do have a recession it will be slow and very short and we will see some growth reappearing towards the end of the year.”