Chancellor scopes review of big fund attitudes to private equity

Chancellor of the exchequer, Gordon Brown, yesterday set the terms for a review of institutional investment in Britain, first announced in last month’s budget statement.

In a speech to the British Chamber of Commerce (BCC), Mr Brown said the review, to be completed by April 2001, will focus on how pension funds and other big investors make their investment decisions. The government is concerned institutional investors, which control around 45% of quoted equity investments, are not investing enough in developing the grassroots of the economy, in particular in supporting entrepreneurs with venture capital funding.

According to Mr Brown the review, to be chaired by Gartmore chief Paul Myners, will look at: how pension funds make their investment decisions, and the role of professional advisers; how institutional investors' results and charges are reported; and the incentive effects of the methods used to assess fund performance.

The review will also examine whether regulatory provisions have “unintended effects” on the allocation of funds to alternative investments including unquoted securities. This will please pension funds. In defending themselves against the charge of underinvesting in these riskier asset classes, fund managers point to the government’s Minimum Funding Requirement (MFR) as a barrier to increasing their exposure.

The MFR was introduced after the 1995 Pensions Act, in the wake of the Robert Maxwell scandal, to ensure that pension schemes are backed by enough investment to meet their future obligations. It forces pension managers to hold long-term government bonds maturing at the same time as beneficiaries take their pensions, limiting their ability to consider alternative investments.

Mr Brown also used his wide-ranging address to cite other government measures to promote an enterprise culture in Britain. These include: a £1bn regional venture capital investment fund; cuts in capital gains taxes for medium-term investors and entrepreneurs; and a series of initiatives to make young Britons aware of the entrepreneurial opportunities open to them.

The British Chambers of Commerce itself is forming a partnership with the Confederation of British Industry and the Institute of Directors to launch a National Enterprise Campaign on 11 May. Other initiatives including sending 1000 business ambassadors into schools, colleges and communities and offering new management scholarships to budding entrepreneurs from high unemployment areas.