The Government has proposed that the pensions industry may be able to negotiate lower fees with private equity firms. Under the suggestion, annual management costs would be reduced to just 1%, while performance fees would be set at 10%.
Laura Trott, the minister for pensions, emphasized that returns on investments could vary. Furthermore, she stated that the Government had made reasonable assumptions in the report. Trott also highlighted that if 5% of private equity allocation replaced bonds instead of stocks, returns could potentially be even higher.
However, Rebecca O’Connor from provider Pensionbee expressed doubts about the feasibility of negotiating such low numbers. She explained that private equity firms charge high rates for valid reasons. Early stage growth businesses require extensive research, and reducing fees would not be possible as the work involved remains the same. O’Connor also noted that these types of investments are typically not accessible to regular savers.
O’Connor questioned the true beneficiaries of these proposed reforms, as the models suggest that the potential payoff for savers may be relatively low.
In other news, Jeremy Hunt has seemingly overruled the City watchdog by proposing a relaxation of short-selling rules. The Treasury put forth a proposal to water down reporting requirements and public disclosure rules for short-sellers following a consultation.
Last month, The Telegraph revealed the Financial Conduct Authority (FCA)’s opposition to any significant relaxation of regulations inherited from the European Union. FCA officials expressed their desire to retain key parts of the existing rulebook in meetings with industry stakeholders.
Short selling is a strategy commonly deployed by hedge funds, involving borrowing shares believed to decrease in value, selling them, and then repurchasing them at a lower price. Traders profit from the difference. The Treasury intends to increase the threshold for reporting short positions to the FCA from 0.1% to 0.2% of total issued share capital.
While the FCA wanted to maintain the threshold at 0.1%, arguing that it facilitated a comprehensive understanding of financial markets and enabled a more data-driven approach, the Treasury believes that the proposed change strikes a better balance between providing the FCA with sufficient data and reducing burdens on reporting firms.
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