Ultimately, according to McPhail, the country needs the money to grow its fledgeling businesses. "I do have some sympathy with the government, but that's not what trustees are paid to care about. They have to take an objective view of the risk tolerance of their scheme, on behalf of their members
"There's a reason pension schemes don't invest in the UK, but instead are invested outside the UK, because that's the way to get risk-adjusted returns. Now if we're going to put 10 per cent of our assets into private markets in the UK, we've got to satisfy [ourselves] it's the right thing to do."
One way of making life a bit more comfortable for trustees would be to create tax incentives for pension funds to invest in UK private assets.
McPhail says: "They could say, 'We will make some of your tax breaks conditional on investing in a particular sector', because that way the pension schemes could rationalise it to their members."
Another way would be to reinstate the dividend tax credit on UK equities, which theoretically would not have much Treasury impact, given investment in UK business is so limited.
Either way, there is enormous pressure on pension funds to make the shift. The question is, can it be managed safely?
Melanie Tringham is features editor of FTAdviser
