Boris Johnson and Rishi Sunak have urged City shareholders to create an “investment big bang” this summer by backing long-term growth prospects such as tech start-ups and infrastructure projects.
In an unusual move that sees Downing Street attempt to influence the allocation of private capital, the Prime Minister and his Chancellor wrote a letter to asset managers encouraging them to move funds away from short-term, highly liquid investments, and instead to seek out “British success stories”.
They argued the move will boost the economic recovery and reward pension savers by increasing their exposure to fast-growing businesses.
The letter said: “We need an Investment Big Bang, to unlock the hundreds of billions of pounds sitting in UK institutional investors and use it to drive the UK’s recovery. It’s time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth.”
The call for action comes amid wider concerns the recent rush of US private equity bids for UK firms, triggered by the pandemic dragging on valuations, could be damaging for British businesses in the long run. Critics accuse buy-out raiders of stripping assets, slashing costs and failing to invest in growth.
US private equity firm Fortress’s £9.5bn move for UK supermarket Morrisons has resulted in tensions between public and private equity investors, with some of Morrisons’ largest shareholders pushing back on the deal, while concerns are mounting about the £6.5bn takeover of Meggitt by US rival Parker Hannifin.
Peter Harrison, chief executive of Schroders, last week said the investment giant does not “object to private equity deals per say” but argued that “what we must not get into is people taking short-term gains when the long-term value of the business is not being recognised”.
Foreign investment in UK start-ups also rocketed this year, with a record £5.1bn funnelled into new companies in the first three months of 2021.
Mr Johnson and Mr Sunak’s letter comes ahead of the Investment Summit in Downing Street in October. In the letter, the pair said that the UK can “now plan for a strong and sustained economy” and shareholders must play their part.
“While we are glad that international investors prize UK assets, and are working hard to attract even more inward investment, we also want to see UK pension savers benefiting,” they said.
“We recognise that there is no single ‘right answer’ for the amount that should be invested in these long-term asset classes. Some funds are already highly active; some – for good reason – are not. You will know best what is right for your business. But we strongly believe this is a question that all institutional investors should be considering.”
Pat McFadden, Labour’s shadow economic secretary to the Treasury, said: “Any change to how people’s pension funds are used requires careful consideration and consultation, not a rushed announcement. You can’t just do this by issuing an appeal from the Prime Minister and Chancellor, with an announcement that is as baffling as the constant disagreements between the two.”