It is tempting to look first to the biggest pots of money as sources of growth capital. But the most promising is one of the smallest
take enough risk with its long-term savings? That may seem an odd question to ask just months after “liability-driven investment” , a previously obscure strategy pursued by some pension funds to juice up returns, threatened to cause a meltdown in the country’s government-bond market. It is also an unavoidable one. Despite the tantalisingly large amounts of capital studded around Britain’s financial-services industry, investment in domestic firms and infrastructure is chronically poor.
Most eye-catching is the £1.5trn held by defined-benefit pension schemes, which offer members a specified income once they retire. In 2008 a quarter of the assets held by such schemes were invested in British equities; by 2021 that had shrunk to 2%. This is largely because these assets no longer need to seek returns. Though plagued by underfunding for much of the period since the financial crisis of 2007-09,pension funds are now £375bn in surplus .
on September 23rd. Regulators are pushing them to maintain chunkier cash buffers, reducing their scope to provide growth capital. The increased conservatism ofNewly announced reforms to Solvency II, rules that govern how much capital Britain’s insurers have to hold, may offer a better chance of driving domestic investment. Announced by the Treasury last month, these proposed reforms are friendly to insurers, cutting the buffer they must have in case their liabilities rise.
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