Life insurer Phoenix Group Holdings PLC (LSE:PHNX) has agreed to launch a joint venture with asset manager Schroders PLC (LSE:SDR) to enable it to deploy more funds into UK private companies.
The new Future Growth Capital (FGC) joint venture is a result of proposals by former chancellor Jeremy Hunt in his Mansion House speech last summer, calling for the UK’s major pension funds to invest 5% of cash into unlisted companies.
Phoenix, which calls itself "the UK's largest savings and investment group" but has a smaller market cap than Schroders, said the two firms are forming FGC as "the first private market investment manager to be established in the UK to promote the objectives of the Mansion House Compact".
Phoenix says it is committing to this 5% amount, deploying an initial £1 billion and up to £2.5 billion over three years, with an aim to deploy £10-20 billion of investor funds over the next decade, where both companies will lead ongoing fundraising.
A key point to note is that FGC intends to invest "to grow the UK’s companies of the future" but will not just invest in British companies but global private markets too.
Funds will be directed using Schroders' long-term asset fund (LTAF) investment platform, with the companies stating that the new investment manager will "design and manage UK and global multi-private asset solutions for UK insurance and pension clients to open access to a broader range of innovative companies and investment opportunities".
New chancellor Rachel Reeves said in a statement that she welcomed the announcement.
"We want pension fund money to work harder for people and the economy. That’s why our pensions review will explore how we can unlock even more investment in the UK economy while boosting pension pots," she stated.
Andy Briggs, CEO of Phoenix (pictured with Scrhoders boss Peter Harrison), said: "For too long, pension savers in the UK have received lower returns than their counterparts in the P7 such as Australia and Canada, partly because the UK allocates much less capital to private market assets than other developed countries.
"By forming FGC with Schroders, it will help us to deliver our goal of giving UK long-term savers a way to invest in a more diversified portfolio with the potential for higher returns, from a broader range of assets."
He said FGC will be a "long-term, patient capital investment manager, constructed to ensure that customer protection remains at its core by taking a blended approach to asset allocation".