Productive finance working group publishes recommendations addressing the barriers to investment in less liquid assets

The Productive Finance Working Group has today published a series of recommendations which could facilitate greater investment in longer-term, less liquid assets.

The Productive Finance Working Group is industry led, co-chaired by the Governor of the Bank, the Chief Executive of the FCA, and the Economic Secretary to HM Treasury.

Appropriately managed, investment in such assets has the potential to generate better returns for investors, including those saving for retirement in defined contribution (DC) pension schemes, given their typically long-term investment horizons. These types of pension schemes are an increasingly important vehicle for saving for retirement, given their assets have increased from around £200 billion in 2012 to over £500 billion today, and are expected to double to £1 trillion by 2030.

Investment in productive finance assets can also benefit the wider economy by supporting the economic recovery from Covid, facilitating the transition to a net zero economy and supporting financial stability. Greater investment in longer-term productive UK assets, such as research and development, technology, and infrastructure can provide a boost to long-term growth and support an innovative, greener future for the UK.

However there are a number of barriers and challenges to investment in less liquid assets and therefore these investment need to be carefully managed. The aim of the Group, convened in November 2020, was to propose solutions to such barriers, including a roadmap, timetable and set of actions.

In its report published today, ‘A Roadmap for Increasing Productive Finance Investment’, the Group has published four recommendations, underpinned by 13 specific actions, with a focus on supporting DC pension schemes to invest and developing the long-term asset fund (LTAF) structure.