Institutional investors can help beat UK’s entrenched regional inequalities, new report finds
New research identifies £16bn in local government pension funds which could immediately switch into “place-based impact investments” – affordable housing, finance for small and medium sized enterprises, regeneration, clean energy and local infrastructure.
The UK’s entrenched regional inequalities could be consigned to the past if institutional investors, such as local government pension funds, direct more of their funds to support local and regional economic development.
This is according to a white paper published last week by three organisations that exist to encourage impact investment in the UK: The Good Economy, the Impact Investing Institute and Pensions for Purpose.
The report explores how to unlock billions of pounds to boost the UK government’s levelling up agenda and economic recovery in the wake of the Covid-19 pandemic.
The researchers found that out of the £326bn held in the UK’s 98 local government pensions schemes, under current rules £16bn could be immediately switched into what the researchers term “place-based impact investments” – assets such as affordable housing, finance for small and medium sized enterprises, regeneration, clean energy and local infrastructure.
Levelling up the UK: the challenge and the opportunity
The researchers conclude: “Behind all of the discussion in this white paper is the idea that if we can get place-based impact investment right and launched across the country – as a top national priority within the build back better and levelling up agendas – then it is not unrealistic to expect the UK to approach 2030 as a landscape where place-based inequalities are becoming a thing of the past.”
The UK suffers more extreme regional inequality than most other comparable economies, found the researchers, and these inequalities have existed for generations. The government’s levelling up agenda – which aims to redress some of these inequalities – is expected to require £1tn of spending over the next ten years.
Read more about Levelling Up: Impact investing can be a “powerful tool” to tackle UK inequality
Currently, local government pension funds are primarily invested in equities (55%) and bonds (20%). However, the researchers note that investments in alternative assets, which fall outside the traditional asset classes of stocks, bonds and cash, and which would include place-based impact investments, have doubled over the past decade to reach an average of 11% of portfolios.
What are place-based impact investments?
Place-based impact investments are made with the intention to yield appropriate risk-adjusted financial returns as well as positive local impact, with a focus on addressing the needs of specific places to enhance local economic resilience, prosperity and sustainable development.
Definition from Scaling Up institutional Investment for Place-Based Impact, May 2021
Place-based impact investments provide stable, high, long-term returns and low volatility compared with other mainstream asset classes, the report states.
The researchers have used the local government pension schemes as an example in the report, but emphasise that place-based impact investments could become “a new paradigm” for other investors too.
However, institutional investors rarely take a place-based approach, point out the researchers, and raising awareness is a key hurdle to overcome.
Scaling Up Institutional Investment for Place-Based Impact was published on 26 May, backed by the UK government’s Department for Digital, Culture, Media and Sport, the City of London Corporation and Big Society Capital.
Header image by David Senior from Pixabay.