Private Equity News & Analysis

UK pension providers still shun private equity

A study conducted by a London-based private equity investment club found that more than two years after the UK government cleared the way to let self-invested personal pension schemes invest in private equity, 21 percent of scheme providers still restrict their investors from participating in the asset class.

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More than one fifth of self invested personal pension (SIPP) providers in the UK do not allow investors to hold private equity within their SIPP portfolios, according to a new study released by Hotbed, a UK alternative investment syndicator for high net worth individuals.

SIPPs schemes are UK retirement saving plans, in which an individual saves money for retirement on a tax-deferred basis and has freedom to invest the funds as he or she wishes.

However, SIPP schemes require a provider – such as an insurance company, a bank or an open ended investment management company – which may restrict the asset classes or types of investments that its SIPP participants can invest in.

According to Hotbed’s findings, while 21 percent of SIPP providers block private equity investments for their investors, 95 percent allow hedge fund investments.

In April 2006 the UK government relaxed the SIPP rules to allow investments in private equity, hedge funds and other alternative investments. Just prior to the rule change, UK’s Pensions Age magazine reported that SIPP schemes are forecast to grow to more than five million by 2020, with sales through independent financial advisors growing from under £1 billion in 2004 to more than £2 billion in 2009.

Claire Madden, director of Hotbed, said the remaining providers who still do not allow private equity investments probably do so to avoid the hassle of enforcing regulatory ownership restrictions on private equity investors as well as to avoid the extra tax liability that comes with allowing their SIPP clients to invest in private equity.

However, Madden also said that since the SIPP provider industry was fragmented and there was not a big uplift in fees in going from a provider who does not allow private equity investments to one who does allow them, the former stood to lose business in the future.

“Its like changing bank accounts – a bit of a pain to do but at the end of the day if you want your pensions scheme to invest in what you want to invest in, it’s a pain worth taking,” Madden said.

The survey results were based on interviews with 19 SIPP providers. Hotbed, which derives 15 percent of its business from SIPP investors, stands to gain from any future uplift in SIPP private equity investment