Guy Saintfiet, partner and head of EMEA fund management in Aon’s Investment practice in the UK, says: “Against a backdrop of heightened market volatility and expensive equity and credit market valuations, institutional investors, such as defined benefit pension schemes, are trying to navigate financial turbulence. Furthermore, in the past few years, and particularly since the 2022 gilts crisis, many have found themselves overweight in allocations to illiquid assets. That can be an issue in itself but is especially a problem for schemes with aspirations to move to an insurance-based solution.

“Liquid diversifiers – alternatives strategies which invest in a range of asset classes and investment styles in both accessible and liquid ways – offer a path to portfolio resilience with genuine diversification. These strategies can help mitigate equity and credit market risks while contributing to consistent and uncorrelated absolute returns.

“However, investors must be clear on their objectives when deciding whether to allocate capital to liquid alternatives. For example, investors with a more short-term investment horizon, such as schemes looking to buyout in the near future, will value a steady return profile. For them, investing in liquid alternatives can play a vital part in maintaining a diversified and more resilient portfolio.”

The process of allocating liquid alternatives can be a challenge for all but the largest institutional investors, as it requires significant expertise and resources. This is why the best approach is often to outsource the implementation.

Saintfiet continues: “Strategic design is vital to ensure a resilient portfolio that can deliver returns across changing market circumstances. This requires investors both to identify skilled managers who can generate consistent and uncorrelated returns, and also to monitor and actively manage the portfolio of underlying strategies and managers as market conditions evolve. Size and speed of execution is also crucial when trying to access highly skilled managers and in negotiating terms.”

Tim Banks, partner in Aon’s UK investment practice, says: “When implemented correctly, our experience is that a liquid alternatives allocation can be a vital portfolio component for institutional investors looking to target steady absolute returns or when they want to improve the resilience of their portfolios. We’ve seen growing demand from clients for diversification and growth assets that provide downside protection – this solution perfectly aligns with these requirements.

“Even amid unprecedented market volatility in recent years, Aon’s liquid alternatives solution still met its performance target, delivering uncorrelated returns when clients needed stability the most. This achievement is a testament to our investment team’s implementation techniques which have consistently supported strong performance despite challenging conditions.”

Other key priorities include closer alignment with the European Union (33 per cent), easier access to finance for SMEs (23 per cent) and improving labour market flexibility and mobility (23 per cent).

The Investment 360 Index is based on research with 138 UK market stakeholders, including private equity investors, management teams, corporate finance providers and business advisors, and has been run by CIL, the independent international management consultancy, since 2017.

While views on the Labour Government’s performance are mostly mixed, with 49 per cent expressing uncertainty, 18 per cent of respondents believe it is doing a good job – marking the highest positive sentiment towards any government since the survey began. This compares to just 8 per cent in 2023 and 3 per cent in 2022, showing a notable shift in perception.

Almost half (48 per cent) of respondents think that fiscal policy should stay the same or it should loosen (40 per cent).  Meanwhile, respondents’ expectations about the BoE base rate also supports the general view that stability is possible, with 59 per cent expecting the base rate to level out at a healthy 3-3.9 per cent by Summer 2026.

However, despite this early positive sentiment, over two thirds (64 per cent) of respondents believe Labour will negatively affect the private equity industry. This apprehension largely stems from concerns around potential changes to capital gains tax, taxes on carried interest, and other wealth taxes.

Commenting on the findings of the Investment 360 Index, Alex Marshall, Senior Partner at CIL, says: “There’s growing optimism among dealmakers, but this could quickly evaporate if tax increases are disproportionate and deter investors and entrepreneurs, who are crucial for driving economic growth.”

“Despite the concerns over tax policy, our research highlights a relatively positive view of Labour’s performance. Nearly half of our respondents are from private equity, and they appear willing to accept some short-term pain to secure the long-term stability they crave. However, this balancing act is critical – the Government needs to raise revenue without stifling growth, and at the same time, the UK must increase spending to foster innovation.”

After eight years in the making, 100,000 Royal Mail employees will join a plan that the company says will provide them with “both an income for life in retirement and a lump sum, making it easier to manage their money in retirement”.

Just one day later the UK government announced a consultation on extending CDC which it says would mean millions of workers could benefit from “greater financial security in later life”.

CDC – which pools members’ contributions into a plan that aims to provide an income similar to that of defined benefit (DB) plans but without the guarantee – is only available to single or connected employers. The consultation will consider allowing unconnected multiple employer schemes to set up a CDC.

Part of the government’s motivation for revisiting CDC is an opportunity to drive pension investment towards projects that support the country’s growth plans.

Chancellor Rachel Reeves uses the Canadian pension system as an example, where funds from pooled pension contributions are invested into a wider range of private assets which she says “can benefit the wider economy and boost returns”.

“Extending CDCs could similarly allow for greater return on investment for those saving into the schemes and allow for larger investment in the UK – supporting the government’s growth mission to boost the economy,” Reeves states.

However, RMPCC is entirely unique and pension investment consultants say it may not prove the CDC inspiration Reeves hopes.

The plan was designed as a halfway house between the company’s existing DB scheme, which had become prohibitively expensive for the sponsor, and a DC alternative that was considered inferior by trade unions.

Paul Waters, Head of DC at Hymans Robertson says: “The Royal Mail’s scheme was designed around specific objectives and the way it’s been set up will not be the best path for all schemes thinking about CDC. Other employers will have their own individual objectives and profile of members, which means a range of different types of design will be needed to cater appropriately for different groups.”

This view is shared by independent pension consultant John Ralfe, who notes that while extending CDC is a foregone conclusion since it only requires “tweaks” to existing legislation, he adds that its appeal is limited.

“If you have already gone through the pain of replacing your DB scheme with a DC plan, why would you then switch to CDC? Meanwhile employers that still have DB have much better funding positions than they did when CDC was first touted, making them less likely to consider it.”

He continues: “Extending CDC is not going to make a whole lot of difference. There may be some employers to whom CDC appeals, but the jury is still out and I wouldn’t get too excited about it until we’ve seen half a dozen companies setting up an individual CDC,” Ralfe says.

Among those supporting the CDC consultation is John Ball, Chief Executive of the Church of England Pensions Board, who says the scheme is “scrutinising the detail” to see whether a CDC arrangement “might transform retirement plans for those who work for the Church”.

So far RMPCC has named just BlackRock as its investment manager and has yet to reveal any asset allocations or strategies.

The international energy services company had 8.69 per cent of its stocks held short by five investment firms, with Astaris Capital Management LLP holding the largest position at 2.51 per cent.

Diversified Energy Company was the second most shorted company with 7.84 per cent of its stocks held short by eight fund managers. This was followed by Ocado Group and Burberry Group with 6.18 per cent and 6.06 per cent of the retailers’ stock held short by five and four fund managers, respectively.

The analysis also revealed GLG Partners LP held the highest number of short positions on UK listed companies of any investment firms, with 40 active shorts. This was followed by Marshall Wace LLP, which held 32 active short positions.

Will Rhind, Founder and CEO of GraniteShares, says: “Energy and retail firms are seen as areas where share price weakness is creating the chance for investors to bet against firms with Petrofac the most shorted stock in the UK along with Ocado, Burberry and Kingfisher.”

“Shorting has long been a powerful tool in the arsenal of institutional investors, but we have seen a rise in retail traders using short ETPs like ours to explore market opportunities. While some retreat to the sidelines, sophisticated investors see opportunity to increase their exposure and potential returns through leverage, and hedge against long positions.”

The overhaul of listing rules better aligns the UK’s regime with international market standards, the FCA writes. “It also ensures investors will have the information they need to make decisions about their money, while maintaining appropriate investor protections to hold the management of the companies they co-own to account. 

“The new rules remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. Shareholder approval for key events, like reverse takeovers and decisions to take the company’s shares off an exchange, is still required. “

The changes to listing rules follow extensive engagement across the market. The FCA says that it has been clear that the new rules involve allowing greater risk, but believes the changes set out will better reflect the risk appetite the economy needs to achieve growth.

The new rules will apply from 29 July 2024.

Sarah Pritchard, Executive Director, Markets and International, at the FCA says: “A thriving capital market is vital in delivering investment to growing companies plus returns and choice to investors. That’s why we are acting to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own. 

“Regulation is only part of the answer in helping the UK achieve sustainable growth. Other factors also play a significant role in influencing where a company decides to list. We’re committed to continually working together with all those who have a part to play in supporting a thriving UK capital market and thank everyone who has contributed to this work so far.’

Chancellor of the Exchequer Rachel Reeves says: “The financial services sector is central to the UK economy, and at the heart of this government’s growth mission.

“These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here.”

Nick Davis, Senior Partner at Memery Crystal, says: “This is the first step in the biggest shake-up of the UK listing regime for 30 years and, after a challenging couple of years for our markets, is a positive move towards making the UK a more appealing listing destination. In particular, the new International Secondary Listing category is a clear sign that London welcomes overseas companies already listed elsewhere to tap into the UK’s investor base without having to follow excessive additional disclosure obligations. We welcome the changes and are optimistic that the markets will reap the rewards.”

Pension funds will be major investors in the fund which government says brings together key institutions to mobilise billions more in private investment – specifically in the net zero transition – and generate a return for taxpayers.

The wealth fund aligns the UK Infrastructure Bank and the British Business Bank to invest in what Chancellor Rachel Reeves calls “the new industries of the future”.

Reeves has established a National Wealth Fund Taskforce which is chaired by the Green Finance Institute and includes former Bank of England Governor Mark Carney, Barclays CEO C.S Venkatakrishnan, António Simões, Chief Executive Officer at Legal & General and Aviva CEO Dame Amanda Blanc.

Blanc says: “At Aviva we are backing the UK and stand ready to invest even more to help boost growth, create jobs and deliver net zero. We need closer working between government and business to make that happen. The establishment of a new National Wealth Fund is a significant step in the right direction. We now must work at pace to turn these good ideas into investable projects which can make a difference.”

The National Wealth Fund follows speculation from the investment industry about how policymakers would encourage more investment from UK pension funds in domestic companies.

Among those welcoming the provision of a multi-billion-pound vehicle in which those saving for their retirement can make allocations to assets with long-term horizons, is Nigel Peaple, Director of Policy and Advocacy at the Pension and Lifetime Savings Association, who says:“In examining the role pensions might play in providing additional investment in UK growth assets, the PLSA recommended last year that the government take steps, alongside the British Business Bank, to improve the pipeline of investible assets available to pension funds.”

He adds: “We welcome the government acting decisively to set out plans for a National Wealth Fund for this purpose and look forward to working in partnership to help develop solutions that work for savers, pension funds and the economy.”

Meanwhile, the Investment Association (IA), whose members manage GBP8.8 trillion of assets in the UK, has written to Chancellor Reeves to outline how the sector can support the new government in its ambition to kickstart the nation’s growth.

Chris Cummings, CEO of the IA, says: “We strongly support the new government’s ambition to drive economic growth and build financial resilience of households up and down the country. We must act to channel more capital into thriving British businesses and infrastructure projects.”

However, Cummings adds a word of caution, noting: “We must find the right balance between risk and safety across the system, and between necessary change and the stability needed for long-term decision making.”

The Octopus Natural Capital Strategy (the Strategy) aims to generate high-integrity carbon removal credits through comprehensive conservation and land management. It will look to provide investors with attractive, sustainable returns and the opportunity to accelerate the transition to net zero by kick-starting the natural capital economy.

The Strategy will initially have a UK focus, looking at the acquisition of land-based assets with conservation potential, and will be exploring ancillary revenue streams tailored to each project and locality: whether this is property restoration, biodiversity net gain credits, regenerative agriculture, ecotourism or renewable energy.

The Strategy will be led by Alex Godfrey, recently appointed as Investment Director. Alex is a seasoned professional in the field of natural capital, regenerative agriculture and climate finance, with over 15 years of experience in investment banking, venture building and environmental consulting. Godfrey joins Octopus from Savills, where he was Head of Natural Capital (Rural and Projects), leading the development and delivery of innovative solutions for landowners, investors and policymakers, leveraging his expertise in carbon markets, biodiversity, and water.

Reporting to Mike Toft, Senior Fund Manager, the firm writes that Godfrey will be honing the Octopus approach to high quality credits, focusing on data-led monitoring, co-benefits of biodiversity, improving the ecosystem, permanence and transparency. The firm writes that he will also play a key role in fostering strong relationships with local communities and sourcing best-in-class, trusted operators to partner with ensuring the Strategy is built on quality conservation.

Octopus Investments has set itself an ambitious goal to grow its assets under management from GBP13 billion to GBP50 billion by 2030. The firm writes that a large proportion of this growth will come from the expansion of the institutional business. In recent years Octopus has launched several funds, including the Octopus Sustainable Infrastructure Fund and the Octopus Affordable Housing Fund. This move into natural capital is the next part of this plan, the firm says.

Mike Toft says: “Climate change is the biggest challenge of our time and while reducing carbon emissions to reach net zero targets is key to addressing this challenge, we will not reach this goal by decarbonisation alone. We know that more high-quality carbon credits need to be generated to help offset carbon and accelerate our net zero efforts.

“We also know that companies want to do the right thing for all stakeholders; the planet, their customers, shareholders and employees. With their own net zero targets approaching, they too are increasingly realising that offsetting will need to play a critical part in that journey. We are aiming to meet this demand through our holistic, nature-based strategy and with Alex now on board with his on the ground conservation experience, we are even better placed to do so.”

Alex Godfrey says: “I have seen over the years how Octopus makes use of its capital. With its entrepreneurial approach and ability to provide innovative solutions to sectors ripe for change, Octopus aims to tackle some of society’s biggest challenges. In the past there has been huge success with solar power, care homes and the energy transition.

“I’m excited to be part of this next priority area for Octopus with natural capital having similar characteristics to these previous big wins; a specialist area in an underdeveloped part of the market that is expected to grow exponentially. I look forward to bringing this to life, creating impact and generating sustainable investment returns for our investors.”

More information can be found here.