We welcome the developments and hope to see an increase in Private Credit products offered by pension funds as the Mansion House Accord is implemented by pension funds.
What is the Mansion House Accord?
It is a voluntary agreement between the UK government and pension providers to allocate at-least 10% of their default DC pension funds to private market assets by 2030, with 5% of this being allocated in the UK.
Default DC pension funds are investments that members of a pension scheme are automatically enrolled in if they do not actively choose their own investments.
The Mansion House Accord builds on rather than replaces the Mansion House Compact of 2023, pursuant to which 11 pension providers committed to allocating at least 5% of their default DC pension funds to unlisted equities (such as private equity and venture capital).
As of the date of this article, 17 pension providers have signed up: Aegon UK, Aon, Aviva, Legal & General, LifeSight, M&G, Mercer, NatWest Cushon, Nest, now:pensions, Phoenix Group, Royal London, Smart Pension, the People’s Pension, SEI, TPT Retirement Solutions and the Universities Superannuation Scheme.
Is it binding on pension providers?
Whilst it is a non-legally binding initiative, UK Chancellor Rachel Reeves has announced plans to introduce a "backstop" if the Pension Providers fail to deliver.
It has been reported in the FT that there is a proposal for ministers to be granted a reserve power to compel investment (of up to £50 billion) in private assets by pension providers, if they do not meet their targets. 'UK unveils ‘backstop’ plan to force pension funds to invest in private assets'.
What are the broader aims of the Mansion House Accord and the Mansion House Compact?
These voluntary agreements with pension providers represent the UK Government's ambition to shift investment culture and make pensions a tool for economic development.
The Mansion House Compact can be seen as a first preparatory step towards the overall goal.
The Mansion House Accord on the other hand is a scaled-up leap, promising a substantially increased amount of capital from the largest pension providers, with the potential for intervention and requiring compliance if commitments are not met.
What are "private market assets"?
These are investments made outside of public stock and bond exchanges in property, infrastructure, private credit, private equity and venture capital.
Impact on Private Credit
The Mansion House Accord has been introduced at a time where the Private Credit market continues to grow year on year.
The commitment by these Penson providers is expected to drive a surge in Private Credit lending (which includes any non-bank lending), especially in infrastructure.
We expect to see an expansion of private credit funds, greater loan origination and a wider range of lending products to cater for requirements on pension providers (such as longer-term debt, steady yield and ESG considerations).
