Track record is most important to investors and is one of the most marketable selling points. Although the small print always warns us that “past performance is no guarantee of future results,” a history of long-term high returns shows that we can outperform in both down and up markets. It suggests the level of approach or skill to be demonstrated.
So if I were to offer a serious asset allocator the opportunity to invest alongside a fund created by a) merging two existing institutions, both of which would have consistent long-term performance; I can’t. b) Few details regarding target returns are provided. c) I don’t think there will be a queue around the block as the name is very confusing.
Ladies and gentlemen, institutional investors, please come together for the chance to put money into Britain’s new National Wealth Fund.
This is one of the government’s key policies as it seeks to fulfill its promise of ownership of wealth creation. Further details, including how the fund will be structured and managed, are widely expected to be revealed at the Prime Minister’s World Investment Summit this month.
But the more I look at this concept, the more I see that it resembles the cynical description of the summit itself: a hastily conceived PR stunt.
First, it’s worth remembering what the National Wealth Fund is and isn’t. This is a public-private partnership bringing together the UK Infrastructure Bank and the UK Business Bank to invest in green infrastructure and technology in the UK. It will start with an initial commitment of £7.3bn to invest jointly with private institutions, with the expectation that for every £1 invested, the private sector will invest £3.
It is not a sovereign wealth fund. Sovereign wealth funds typically invest profits from domestically produced goods. But the National Wealth Fund is probably doing the opposite. The UK would have to raise £7.3bn from taxing oil and gas companies as there would be no excess profits.
Rachel Reeves is trying to give the impression that she’s launched a big, shiny fund to rival the big wealth funds in Norway and Saudi Arabia.
Stephen Rousseau/Pennsylvania
Choosing a name that is so similar that it sounds like a synonym for “sovereign wealth fund” can lead to confusion. Many financial experts I spoke to were unsure as to what exactly this fund was, and some articles I read on the subject referred to it as a sovereign wealth fund. I’m here.
The government has made little or no effort to correct this misconception. Perhaps this is unfair, but just like the market sellers selling Gucci bags and Giorgio Armani jackets, Rachel Reeves is launching a huge, shiny fund to rival the giant wealth funds of Norway and Saudi Arabia. I feel like they’re trying to make an impression. , in fact, she is promoting a cheap copy version.
There are several issues that governments need to address to persuade the private sector to deploy capital.
Compared to the large investment funds that compete for the best infrastructure assets, national wealth funds are not large enough to be competitive in their current form. Norway’s Norges Bank has assets of $1.7 trillion, Saudi Arabia’s public investment fund has just under $1 trillion, and Singapore’s Temasek has a net portfolio value of about $300 billion.
Second, potential investors may become skeptical about the track record of their government bedmates. British government-backed funds have a checkered history. British Business Bank lost £122m last year as the value of its tech investments plummeted. Other ventures, such as the UK Green Investment Bank and the Pension Infrastructure Platform, failed to deliver on their promises and were sold without reaching scale. The UK Infrastructure Bank was only established in 2021, so it hasn’t had time to build a meaningful track record.
Finally, the government’s rationale is that it avoids risks by co-investing public funds with the private sector. But is this really a big enough carrot? Indeed, if Britain’s green infrastructure and technology were full of attractive investment opportunities, wouldn’t it already have received a glut of international investment? They are not.
I’m all for financial innovation, but only if it’s backed by the right scale and clear goals. Also, its main purpose is to provide financial returns to investors, not column inches.
For the National Wealth Fund to gain investor support, the government will need to convince investors that it is more than just political showmanship. It’s another thing to have the private sector fund a new outfit for the Cabinet. Asking for funding for new clothes for the emperor is quite another.
Seema Shah is Chief Global Strategist at Principal Asset Management
