Phoenix backed the Mansion House Compact in July 2023 as one of the first signatories, committing to allocating at least 5% of its default funds to unlisted equities by 2030.
For the latest instalment of its Mansion House Compact Spotlight series, IPE spoke to Sam Tufts, head of strategy and solutions in the asset management team at Phoenix, about the group’s plan to extend its private markets experience for DC
For Phoenix, signing the statement of intent behind the Mansion House Compact was all about better outcomes for its customers.
Sam Tufts, head of strategy and solutions in the asset management team at Phoenix, said that for “too long there have been barriers” to giving defined contribution (DC) savers access to private market investment.
He said: “We can see that with a number of our other portfolios and business that [private market investment] is performing really well and we’re super passionate about getting our DC customers access to a wider range of asset classes, giving them best diversification and ultimately better long-term returns.”
Because Phoenix is already accessing private markets investments elsewhere in its portfolios, where it is seeing “smooth results”, Tufts said that including it in the DC portfolio is “just a natural extension”.
At the moment Phoenix has around £270bn of assets under management, of which approximately £230bn is managed on behalf of its customers and the rest sitting on the firm’s balance sheet.
Tufts said: “On our own balance sheet we have around £12bn of private market investment already. There’s around £7-8bn of private credit across commercial real estate lending and infrastructure lending, and there’s around £4bn in mortgages.”
Tufts also disclosed that Phoenix recently made investments into private equity and venture capital and direct infrastructure on behalf of its customers.
But it has not yet ventured into private markets on behalf of its DC clients, citing investment fees and cost of entry.
DC solution in the pipeline
With the launch of the Mansion House Compact asking for a commitment of at least 5% of default DC funds to be invested in private equity, however, Tufts said that Phoenix is developing a solution that will allow DC savers to access that market.
Tufts said: “We are looking at the Mansion House Compact as an opportunity to provide a multi-asset class market solution for customers.
“It will be a combination of both debt and equity, we’re not necessarily trying to get into one before the other.”
He added: “It will be a quite slow deployment initially because it takes time to get into these asset classes and increase allocations. We will try to do that over a multi-year period and try and get towards 5% by 2030 when the opportunities are available that allow us to do that.”
Over time, Tufts added, Phoenix will look to provide different types of risk appetite solutions for customers “so that they have choice around private markets strategy along with other asset classes”.
Other benefits
But for Phoenix investing in private markets is about more than just customer outcomes. Tufts said that another aspect of private market allocation is that it is an opportunity to invest sustainably in “big macro issues that need capital”.
“There’s a really good investment reason for investing in those things. A lot of capital is required to help us transition into a cleaner economy and meet a lot of other objectives and they tend to have really good financials around those opportunities as well.
“It is a great opportunity for us to make a difference with people’s savings.”
However, Tufts said that in order to invest in private markets scale is needed.
“We at Phoenix are in an advantageous position because we are large enough so that we have resources to go and spend lots of time on due diligence in the asset management partners we invest with. It’s not really realistic for very small pension funds with maybe a couple of trustees and a couple of people looking at it to cover all asset classes and spending time that you need to make sure you make good private markets allocation decisions,” he noted.
There have been reports in the media over the weekend that Phoenix is looking at launching a “multi-billion-pound investment vehicle” in response to Mansion House reforms. Phoenix branded the reports “speculations” and declined to comment further.
Mansion House Compact explained
The Mansion House Compact is a commitment announced by the UK chancellor Jeremy Hunt in his keynote policy speech at the Mansion House, the official residence of the Lord Mayor of London, on 10 July 2023.
It calls on DC pension schemes to boost investment in UK unlisted equities.
As part of the compact, signatories are expected to allocate at least 5% of their default funds to unlisted equities by 2030.
Currently, the DC schemes’ investment in UK unlisted equities is under 1%.
According to the chancellor, if the UK’s DC market follows suit, this could unlock up to £50bn of investment into high-growth companies by that time.
The initial signatories of the compact included Aviva, Scottish Widows, Legal & General, Aegon, Phoenix, NEST, Smart Pension, M&G and Mercer. Since then, Aon and Cushon have joined as signatories of the compact.
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