24 Nov 2022

Productive Finance Working Group

The Productive Finance Working Group was convened by HM Treasury, the Bank of England and the FCA in November 2020, to develop practical solutions to the barriers to investment in long-term, less liquid assets.  The Working Group membership has comprised a broad range of industry participants, including pension schemes, investment consultants, asset managers, pension scheme trustees, investment platforms, a law firm, and trade associations. These have included The Investment Association, who have represented AREF’s interests, and some AREF Fund Members.

There are several vehicles that can facilitate investment in long-term, less liquid assets, including investment trusts, qualified investor schemes (QIS), European Long-Term Investment Funds (ELTIF) and others. A high priority and early deliverable for the Group was to facilitate the successful rollout of the Long-Term Asset Fund (LTAF) structure. Although, the Working Group’s focus has been mainly on the barriers faced by DC pension schemes to invest in long-term, less liquid assets, consideration was also given to distribution to a broader range of investors, including retail.


Guides

On 24 November 2022, the Productive Finance Working Group published a series of guides to assist DC decision makers such as pension trustees, and their advisers, who may be considering making allocations to private market investments. In addition, a model OEIC instrument of incorporation for LTAFs has been published. Both the guides and the model instrument are available on the IA’s productive finance webpage.

We hope these guides will prove useful to firms who are engaging with potential clients, particularly DC pension trustees and their advisers.


Roadmap for Increasing Productive Finance Investment

After extensive discussions both among the Working Group members and with the broader industry and official sectors, on 27 September 2021, they published A Roadmap for Increasing Productive Finance Investment.

This report sets out the Working Group’s findings and recommendations:

  • Section 2 outlines the case for investment in less liquid assets and evidence of low levels of such investment by UK DC schemes;
  • Sections 3-6 consider the key barriers to DC schemes’ investment in such assets, and sets out proposed solutions. These have been grouped them into four categories:
    • shifting the focus from cost to value for DC pension scheme members;
    • building scale in the DC market;
    • adopting a new approach to liquidity management;
    • and widening access to less liquid investment, including to retail investors.

More details on the Productive Finance Working Group can be found on the Bank of England website.

Author

Jacqui Bungay

Jacqui Bungay

Head of Policy and Company Secretary, AREF

Jacqui is AREF’s Company Secretary and provides policy guidance and secretariat services to AREF’s Board and Management Committee as well as many of AREF's committees and working groups.

Jacqui joined AREF in 2014 after working for over 25 years in fund compliance, client relationships and administration in the trustee and depositary sector.