Good governance essential for The Mansion House Accord’s success
Background
The UK Government’s ‘Plan for Change’ initiative sets out the ambitious goal of creating serious economic growth. The Mansion House Accord (MHA), which builds upon the Mansion House Compact, is an integral part of this initiative where 17 of the largest UK pension providers have voluntarily agreed to allocate at least 10% of their workplace pension portfolios in private market assets by 2030. Further, half of that investment will be ringfenced for the UK, unlocking an estimated £25 billion directly for the UK economy, with the aim of helping lower household bills, creating jobs, boosting business and aiding the government in reaching their goals set out in the ‘Plan for Change’ initiative. HM Treasury claims that British pension savers can expect potentially higher returns as a result (13 May 2025).
Is the government ‘meddling’ in investment decisions? Steering default funds towards certain asset classes, even with opt-outs, may lead to investments driven by policy preference rather than risk-return considerations. Indeed, one may argue, that if pension funds are not already investing more in UK growth assets, there are probably good reasons. Moreover, political influence over investment decisions may raise moral hazard. The fiduciary duty to maximise returns for their members is not necessarily synonymous with national economic policy.
However, if gone about in a careful and correct manner, we believe the Mansion House Accord could be a huge success for the government’s finances, the UK economy, and for pension savers.
Don’t dismiss the Mansion House Accord
It is important to recognise that the government cannot, and should not, attempt to stimulate the UK economy solely with taxpayer money. Institutional investors, particularly pension funds, are critical to mobilising capital at scale, but trustees must be confident that their members’ assets are being deployed in a way that is financially sound as well as socially beneficial. Investing in the UK offers clear long-term advantages, after all, savers will ultimately retire into the very society their pensions help to shape. A stronger health service, resilient infrastructure, cleaner energy, and improved education all create a better environment for members themselves.
Yet ‘good intentions’ alone will not be enough; financial attractiveness and governance safeguards must underpin any strategy if it is to succeed. This is where government incentives should come into play. Matching institutional capital through co-investment can be a powerful tool. Given that the government can borrow more cheaply than private institutions, it is well placed to take a “first loss” position covering up to say 20% of any downside on a given project. This approach transforms the risk-reward profile of UK investments, making them more appealing to pension schemes that are understandably cautious with their members’ savings. Such mechanisms are already familiar in infrastructure finance globally and could be the key to unlocking billions in UK infrastructure, where they are desperately needed.
Critics will rightly point out that such investments are illiquid. However, this is not necessarily a barrier for pension funds (DB as well as (C)DC) as they operate with long-term horizons anyway. Moreover, many infrastructure assets offer returns that are linked to inflation, aligning naturally with scheme liabilities, reducing risks associated with illiquidity.
Governance
The greater challenge lies in the power imbalance between pension fund investors in private assets (LPs or Limited Partners) and managers (GPs or General Partners). GPs are very likely to be the biggest winners of the MHA. Whilst they typically bear little of the investment risk (their ‘skin in the game’ is often limited to a few percentage points of the total), they make very sure to take the lion’s share of the return. Whether pension funds and hence members are going to benefit therefore remains to be seen. The government had better be careful pushing lesser experienced pension fund investors into private assets if the spoils are going to be shared unevenly. Only if the private asset investor possesses the knowledge and experience, as well as the buying power to improve its share of the investment return will members see a reasonable share of the benefit of the private market investment.
What Does Success Look Like for the MHA in 5 Years’ Time?
At its best, the MHA could deliver a material increase in local investment across infrastructure, education and sustainability initiatives, with knock-on benefits for GDP growth and government borrowing. Pension savers would see both stronger returns and an improved society in which to retire.
Conversely, coercion and mandated in- or divestment is bound to compromise good governance, undermine trust and thus may have a long-term detrimental effect on the country. The signatories of the MHA are well advised to ensure that their decision makers fully understand the risks that they are taking. They should also organise expert (and independent) support in negotiating terms for their private investments.
Conclusion
The MHA represents both an opportunity and a test. For government, it is a chance to prove that policy direction can catalyse private capital without overstepping into interference. For trustees, it is a reminder that fiduciary duty and societal impact are not mutually exclusive, provided the right governance is in place. And for members, if handled carefully, it is a promise that their savings can work harder - not just for their retirement, but for the society they will retire into. The sceptics are right to question, but if the MHA is implemented with prudence and transparency, it could well be a very significant turning point for UK pension investments. Getting the governance right is essential.
Independent investment governance specialists with a collective 500 years of experience built up in senior pension and investment leadership positions. We operate globally with offices in the UK and Continental Europe.
