The head of Abrdn warned that British pension funds should not be “forced” into purchasing UK assets by the government.
Jason Windsor argued that proposals to require retirement funds to invest minimum amounts in the UK were a bad idea. He believes it would be better to introduce reforms that make the UK more appealing for world savings. He said: “I don’t believe in forcing investors to invest anywhere.”
A group of City lawyers, brokers and other professionals on the sell-side are pushing for a so-called “mandation”, which would require pension funds to allocate money to the UK. The Treasury hasn’t ruled out the possibility.
Windsor stated that the UK could attract more investment from abroad than it could from within: “You can be sure that investment will follow” if they make themselves attractive to international investors.
The idea has also been attacked by other institutions such as the £76 billion Universities Superannuation Scheme, and the £30 trillion Greater Manchester Pension Fund.
Andrew Bailey, Governor of the Bank of England also criticised this plan. He said in Washington, this week: “I do not support an allocation of pension funds to UK assets that is compulsory.”
New Financial, a City think-tank and lobbying firm, released a report claiming that UK pension funds now allocate only 4.4 percent of their assets in UK equities. This is down from over 50 percent 25 years ago.
Mandation would be justified by the fact that UK taxpayers fund pension schemes with huge tax benefits. Arguments against include that pension schemes may have lower returns, and provide smaller pensions or cost sponsors more money.
Windsor’s warning was issued as Abrdn fell more than 10% after the company revealed that clients were once again withdrawing money from it. A net £3.1 billion had been extracted by the end of the third quarter.
Abrdn reported net client inflows of £800,000,000 during the first half of this year, which was relatively benign.
Windsor who succeeded Stephen Bird in May as chief executive, admitted that “overall performance is not what it should be”. He added that Abrdn is redoubling their efforts to stop the outflows, while a £150-million cost-cutting program was on track.
In the last quarter, Abrdn’s platform for financial advisers and equities clients lost a total of £1.1 billion.
Windsor has seized upon a strong performance by Interactive Investor division which is a direct service to retail investors, claiming that it gained a net of £2.4 billion in new business during the third quarter.
The total assets managed by Abrdn increased to £506.7billion from £505.9billion at the end June, as the rising markets outweighed the loss of mandates.
Abrdn is the result of the merger of Standard Life and Aberdeen Asset Management. It has seen its business decline over the years as clients prefer passive investment to active and have turned away from emerging markets – one of the company’s core strengths.
Mandeep Jagpal is an analyst at Royal Bank of Canada. He said that the loss of business was greater than the consensus estimate of a PS1bn outflow, and that it represented “a step-back” in the story of the flow turnaround. He said that although Abrdn had, at least in part, reduced its costs, the decline in net flows, and fee margins, more than offset any self-help effort.
Windsor reported that some UK investors are trying to anticipate the budget next week. For example, Abrdn is seeing an increase in people withdrawing tax-free money from their pension funds in case of a crackdown by the chancellor. The figures are “not huge”, the report said.
Windsor warned the government to not force pension funds to allocate minimum investment levels into the UK. He said: “I don’t believe in forcing investors to invest anywhere.”
He said that the UK must make itself a more attractive place for investment. “You can be sure that investment will follow”, he added.
Windsor said that there were more investment opportunities outside of the UK than inside. He added: “Let us try to attract global investors into the UK.”
Some City institutions lobby for a change to the rules which would require UK pension funds allocate some of their assets in UK investments, or at least listed companies in London.
Windsor played down the expectation that Abrdn would be able to take any of its £800 million surplus out of its legacy pension scheme. He said, “We haven’t made as much progress as we would have liked.”
Windsor, however, said that the rules of the defined benefit plan were “archaic” and that the process to access the surplus was complicated. He said that they were still gathering information and promised to provide an update on the results of the full year.
The share price closed at 145 1/2p, down by 18 1/2p or 11.2%.
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