The British Coal Pension Fund is to invest an extra £560m in private equity, taking its total to £1.4bn, the Financial Times reports.
The fund, which controls £28bn of assets of more than 500,000 former miners, is the second largest pension fund in Britain. The money to be invested will bring its private equity investment to five per cent of its assets. Britain’s entrepreneurs however are likely to be disappointed as most of the extra investment will go into US rather than UK funds. The fund has also deferred plans to invest in hedge funds.
Earlier this year, pension funds were criticised for failing to support British industry by investing in private equity funds. Figures from the British Venture Capital Association show that British pension funds put just £437m of venture capital into domestic companies last year – just 7.5 per cent of the total raised around the world, the newspaper says.
Last month, Paul Myners, chairman of Gartmore, the fund manager, recommended that the minimum funding requirement (MFR) for pension funds should be dropped and tougher checks on fraud should be introduced. The MFR, introduced to prevent losses such as the ones incurred in the Robert Maxwell pensions scandal, obliges pension funds to invest in low risk asset types such as gilts at a time when their yield makes them poor value for money. Fund managers are arguing that the MFR is one key reason why they are not investing in the venture capital industry. Mr Myners also proposed that existing legislation making it potentially illegal for trustees to invest in private equity limited partnership be revised. Such alterations would require changes in secondary legislation under the FSA.