Pensions take another step towards private markets in Schroders Phoenix joint venture

Schroders and Phoenix Group have launched a new private markets manager, Future Growth Capital, with £1bn in backing.

The new joint venture between the asset manager and pension giants is a significant step for the pensions industry into private markets, a direction the industry is clearly heading in.

“Schroders bring the private markets capabilities, and Phoenix brings the deep pensions participation and a huge base of pensions that have the need,” said Schroders chief executive Peter Harrison

The group will begin with £1bn of assets from Phoenix Group, with the pension provider adding five per cent of its saving products to the group, bringing its contribution up to £2.5bn over the next three years.

However, “we see five per cent as a starting point,” said Phoenix CEO Andy Briggs, arguing that the expansion of investment into private markets over recent years was just the beginning.

“There is clearly a huge need to help savers in the UK navigate to the new world, and we’ve had the Mansion House compact, which I think is the clearest demonstration of that new need,” added Harrison

While initially launching with just Schroders and Phoenix on board, the group aims to expand outwards to other financial groups, targeting £10bn to £20bn over the next decade.

Future Growth Capital will invest across a range of private market sectors, with infrastructure, real estate, private equity and private debt all on the cards. It also plans to invest internationally, as well as in the UK.

Despite being founded jointly by Schroders, other asset managers will be brought in to help out.

“Schroders will manage a large part of the assets… but we’re very much keeping the philosophy we’ve had of using best in class asset managers in different areas,” said Briggs.

While the fee structure of the new group will be revealed later, Harrison was keen to say that fees will be competitive and provide high returns, even when the costs are included.

“We’re not talking about a two and 20 type private equity thing that most people associate with private markets,” he said, referring to a two per cent fee plus 20 per cent performance fee often used by private equity managers.

Schroders has been expanding into the private markets sector more broadly recently with the launch of its various Long-Term Asset Funds (LTAFs), as the asset manager was the first to launch one of the new vechicles.

“We’ve seen really good uptake of the LTAFs more broadly” among institutional clients, Harrison claimed.

Initially, Future Growth Capital will actually use Schroders’ LTAF investment platform, providing investment advice to the fourth and fifth LTAFs planned for launch by Schroders Capital.

Chancellor of Exchequer Rachel Reeves said: “I welcome today’s multi-billion-pound announcement from Schroders and Phoenix Group, which will ensure that more of people’s pension savings are invested into the UK’s highest growing companies.

“We want pension fund money to work harder for people and the economy. That’s why our pensions review will explore how we can unlock even more investment in the UK economy while boosting pension pots.”