The government eager to boost economic bounceback has held private talks concerning the Long Term Asset Fund scheme, which aims to invest billions of pounds of pension savings in new infrastructure and start-up businesses. 

Private Talks Held to Discuss the Long Term Asset Fund

The Long Term Asset Fund scheme, originally announced by Chancellor Rishi Sunak in November 2020, plans to channel a significant portion of capital within workplace pension schemes into funding rapidly growing businesses, transport projects, real estate and carbon-friendly investments. Set to launch later on in 2021, the controversial scheme would unlock some of the UK’s £2.2trillion retirement savings and lend it to fast-paced developers and start-ups. The Long Term Asset Fund scheme emerges as part of the Government’s rescue plans, seeking radical alternative sources of cash to help the economy rebound following the global pandemic. The government believes this scheme will provide vital backing for British start-ups and divert them away from seeking the capital they need from abroad. Pension fund managers have begun to signal their support for the scheme, which they hope will give savers an alternative source of income to top up their savings.

Investment Scandal Controversy 

The Long Term Asset fund has sparked controversy from financial experts who point to the Neil Woodford investment scandal as an example of risky trading. Neil Woodford CBE is a British fund manager who gained a reputation as Britain’s star stock picker who was famously toppled by his own bad investments. The trouble began during a successful 25 year career at investment management firm Invesco Perpetual. Reported to have spent years clashing with his colleagues and management teams for his apparent overconfidence in long-shot investment decisions, Woodford left in 2014 and set up Woodford Investment Management LLP. He went on to launch Woodford Patient Capital Trust, a listed investment trust in 2015 and Woodford Investment Management launched a second Equity Income Fund in 2017, LF Woodford Income Focus. Mr Woodford also owned 29% of energy broker Utilitywise, which would later collapse. Following two years of poor performance it was revealed in an investigation by the Sunday Times that the fund held less than 20% of assets in FTSE 100 companies compared to over 50% when it was created, and over 20% of assets were in small Alternative Investment Market companies. On 4 June 2019 trading in Woodford Investment Management’s largest fund (the Woodford Equity Income fund) was suspended and the Financial Conduct Authority launched a formal investigation. Investment management firm Hargreaves Lansdown had raised concerns about high-risk unquoted shares held in Woodford’s Equity Income fund with him and Link Fund Solutions, who held responsibility for the fund. These requests for details about the value of some shares were turned down with reassurances from Mr Woodford that the risks were blown out of proportion. We now know that Woodford’s strategy of diversifying away from the publicly listed companies and his fascination with small, private companies would be his downfall. His spiralling investments in start-ups offering opportunities for exponential growth in the science and tech industries eventually led to losses of £1.3bn. His overvaluation of such companies led to rumours spreading with those industries about Neil Woodford’s ‘open cheque book’. According to the Asset Management Correspondent David Ricketts’s book Woodford, When the Fund Stops, one prospector telephoned Mr Woodford to give their pitch, from the Shell garage opposite Invesco Perpetual’s offices in Henley-on-Thames. Once word got out that perhaps things were going sour, wealth management firm St. James’s Place plc terminated Woodford’s contract to manage three of its funds, valued at £3.5 billion into which the FCA is conducting an ongoing investigation. On 15 October 2019 the fund board announced that Woodford’s flagship fund, Woodford Equity Income Fund, was to be shut down and Woodford had been removed as investment manager. Within 24 hours Woodford announced his resignation from his remaining investment funds and that he would close his investment company in an orderly fashion. Two years later some 300,000 investors are still waiting to learn what their final losses will amount to, after their savings were bid on unlisted investments, which are by their nature less liquid than public holdings. Meanwhile, the FCA is under pressure from politicians and consumer advocates to conclude their investigation. If you have savings that have been affected you can find out more about Woodford Litigation here. 

Critics Warnings

Critics of the Long Term Asset Fund warn that workers will be pressured into placing their pension savings into non-liquid investments that are difficult to sell. Non-liquid assets are assets that can be difficult to liquidate quickly. Land and real estate investments are considered non-liquid assets because it can take months for a person or company to receive cash from the sale. The Investment Association says that savers ‘understand that they are making a long-term commitment to invest’ and that ‘they may not be able to get their money back quickly.’ Investments in property are often illiquid, exacerbated further by the pandemic. A number of property funds have closed in the last year, notably Aegon and Aviva. This leaves thousands of investors trapped because fund managers are not able to sell investments soon enough to meet their requests for withdrawals. This could indicate difficulties with the Long Term Asset Fund scheme, if such problems occur when retirees request to access their money when they need it. These concerns are equally relevant to transport and infrastructure investments. If investors’ savings are loaned to HS2 for example, that asset would not be capable of offering a return for many years, since railway bosses can’t just sell a piece of track to release funds for one new pensioner. They will need to be turning over a stable profit from passenger fares and advertising, which even if successful, will be a long way off in the future. The further a construction project goes over budget, the longer it will take for the business to accrue a steady income and be able to pay back investors, which is common. The Millenium Dome, Channel Tunnel and HS2 are just a few famous over budget construction projects.

Possible Resolution to Housing Crisis

Alternatively if cash flow is managed well, we could see pension savings being managed in a manner that will boost local economies whilst earning better returns for pension savers. Unlocking billions of pounds of pension funds could help resolve the housing shortage and regenerate local communities. According to Nigel Wilson Chief Executive of Legal & General. He believes the Long Term Asset Fund ‘may evolve into a useful instrument for doing this, but we also need a change in mindset and some powerful nudges – possibly even soft compulsion – to ensure pension trustees and their advisers engage with productive finance and inclusive capitalism’. Plans are being discussed to make the Long Term Asset Fund the default workplace pension scheme for workers entering the workforce. Although it would be possible for pension savers to opt out of paying into the Long Term Asset Fund, it may be unclear how to do so for new workers, or how the scheme operates, potentially putting workers pension savings at risk without their knowledge or express consent. Additionally the Long Term Asset Fund scheme would need to overcome the limit on the fees that workplace retirement schemes can charge. Concerns have been raised that pension costs could increase if this limit is relaxed. A Department for Work and Pensions spokesman said: ‘We are passionate about making sure people can get the best outcomes from their pension investment and we are gathering views to deliver this.

Caution

Financial blogger Iona Bain writes: “Relaxing investment rules in the UK should be viewed with caution,” recalling the Neil Woodford scandal. She explains: “Investing in new science and tech can be rewarding, but it can also go very wrong if you’re not clear-eyed. Woodford’s visionary zeal and credulity meant he ended up with too many scrappy illiquid stocks and took his eye off larger investments that went sour, creating a death spiral in which his portfolio’s falling value sparked more withdrawals that became increasingly hard to redeem.” The FCA investigation is yet to yield results for the many pension savers who entrusted their money to his schemes and have now lost out. It could be argued that their conclusion on Woodford’s actions is taking a long time to materialise, compared to the vision of the Long Term Asset scheme, which could be launched as early as November 2021 whilst the conversation seems “to be moving onto how we can ease rules and standards to facilitate more investment for ambitious companies, ideally in science and tech. The kind of firms Woodford coveted, in fact.” Much of the success of the scheme will depend on how and where funds are distributed. Savers contributing the most money may not see it directly supporting their local economies. In principle the Long Term Asset Fund scheme could be an ingenious method for freeing up cash to support the younger generations struggles with housing in the short term for example, whilst investing in smart tech solutions will still support pension savers retirement in later years. However all of this will depend on sound projections and strict regulation to avoid a catastrophe like the Woodford investment scandal.

At Prestige Business Management we can help your Business

Would you want your pension savings invested in innovative start-ups to help solve the nation’s economic problems? At Prestige Business Management we can help your business understand the best solutions for the success of your business. Find out what we can do for you. Call us today on 0203 773 2927.