XPS responds to the Chancellor’s Mansion House speech

XPS responds to the Chancellor's Mansion House speech

15 Nov 2024

In Rachel Reeves' inaugural speech at Mansion House, the Chancellor stated her intent to deliver a significant consolidation of the Defined Contribution market to enable schemes to deliver better saver outcomes while investing to support UK growth. She also set out an ambition for LGPS to consolidate further to build sufficient scale to unlock new investment opportunities.

Mark Searle, Partner and Head of DC Investment at XPS Group said, "Scale is not required to unlock the immediate benefits of investing in private markets for most DC schemes. It is already feasible for schemes of £30m and above to invest up to 20% in illiquid markets. We believe that the stimulus needed to drive investment in private markets is a change in mindset from focusing on minimising costs to maximising long term performance. Using Australia as an example, one reason their DC schemes have such large allocations to these assets is because there is clear evidence that achieving strong risk adjusted returns will win them new business. There isn't the same dynamic in the UK currently but the introduction of some type of performance-based league tables would help change the mindset."

Dan Carpenter, Partner and LGPS Investment Lead at XPS Group said, "In order to be successful, it is important to reflect on and address the elements that have to date held back many LGPS administering authorities from greater adoption of the existing pools. These issues include concerns over organisational stability of the pool, combined with limited resources or capabilities leading to gaps in the available offerings. Together this means more than half of assets are currently invested outside of the pools. Not all pools have sufficient capability to provide the full range of services required.

The case for greater scale leading to better outcomes is compelling, but in order to drive progress, pools need to be invested in and positioned to attract LGPS participation, rather than administering authorities being coerced into something that they consider sub optimal. This drive needs to be pull rather than push."