County workers’ pension fund upping investment in ‘higher risk’ private equity

The pension fund relied upon by a large number of public sector workers in Devon is aiming to up the amount of money it invests in “higher risk” private equity, amid a high-profile push by the government.

Nearly 40,000 people saved money in the Devon Pension Fund last year. Now it wants to increase the amount it invests in private equity from 1.3 per cent of its assets to three per cent during the next financial year.

Investing in private equity often means pension funds have greater exposure to smaller companies, which are deemed to offer higher growth prospects than more established firms.

However, research from Beauhurst, which specialises in data on private companies, said that 20 per cent of private UK companies started in 2017 had failed.

The move to increase exposure to private equity comes amid a campaign by central government to encourage pension funds to invest in such assets.

In the Autumn Statement, chancellor Jeremy Hunt announced he would revise local government pension scheme guidance to allow such a move, that could lead to an estimated £30 billion of local government pension scheme money being invested in private equity firms.

However, a government consultation on the move showed a large amount of opposition, with 84 per cent of respondents against, mainly because of fears about a conflict of interest and it being “inappropriate” for central government to suggest how local pension funds should invest.

Several respondents expressed concerns about private equity as “a higher risk asset class, and about impacts on investment costs and liquidity”, meaning how easy they are to sell.

Larger public companies listed on stock exchanges issue shares, which investors such as pension funds can buy and sell on a daily basis.

A spokesperson for Devon County Council said the aim was to have three per cent of the county’s pension fund invested in private equity in the next financial year, “increasing to four per cent in the medium term”.

“Currently, there are no plans to increase its allocation to private equity beyond four per cent but this will be reconsidered when the strategy is next formally reviewed in early 2025.”

The spokesperson added that the chancellor’s hopes for pension funds to invest 10 per cent in private equity was not a formal target at present.

“Each local government pension scheme fund should set an ambition to invest 10 per cent in private equity, but there are no timescales put forward for this, and neither is that investment mandated,” the spokesperson said.