A significant shift in UK pension policy is about to alter demand dynamics in one of the market’s most persistently overlooked sectors – here the Gravis team explore what the reforms could mean for client portfolios and utilisation of listed real assets.
The voluntary Mansion House reforms, announced by the Government in 2025 alongside the recently enacted Pension Schemes Act, are expected to direct substantial pension capital towards infrastructure, property and other long-duration productive assets over coming years.
In fact, the Government estimates the reforms could unlock £50bn for investment directly into infrastructure assets, of which £25bn will be invested in the UK economy by 2030.
While much attention has focused on private market investing, an important detail in the Bill will have wider implications.
Under the new legislation, pension schemes can now meet these allocation requirements through listed investment vehicles, including investment companies and funds, such as the TM Gravis UK Infrastructure Income Fund, that invest in them.
This could mark the beginning of a structural re-rating opportunity across parts of the listed investment company universe that have spent years trading at historically wide discounts.
Structural advantages may become increasingly relevant
Much of the political conversation around pension reform has centred on private equity, venture capital and untested long-term asset funds (LTAFs). However, one consequence of the legislation is that listed investment companies will offer pension schemes a more efficient route into productive assets than some private market structures.
The listed market already provides exposure to exactly the same categories of productive assets policymakers are encouraging pension schemes to support.
Infrastructure investment companies own energy grids, transport networks, battery storage facilities, fibre infrastructure and renewable energy assets. REITs provide exposure to logistics, healthcare facilities, residential housing and warehouse portfolios.
Many of these vehicles generate inflation-linked income streams, contractual cashflow uplifts and long-duration income characteristics that institutional allocators increasingly prioritise.
What’s more, LTAFs typically hold around 15% of net asset value in cash, effectively creating a premium on the price paid and a drag on deployed capital.
By contrast, listed investment companies trading at current discounts of up to 25% offer investors access to similar assets at significantly cheaper levels.
The difference is a not inconsequential pricing disparity of around 50%.
Assuming those assets generate yields of around 8% annually, the return profile becomes materially more attractive than equivalent structures holding cash reserves.
International investors have already recognised the value
Overseas investors have already shown sustained interest in these sectors. Blackstone has spent years accumulating UK logistics and warehouse assets. KKR recently sought to acquire Assura and its healthcare property portfolio. US healthcare REIT Care Trust REIT has acquired UK-listed Care REIT to gain exposure to British care home assets.
This suggests international investors have been aware of the attractive pricing and long-term value in sectors that have been overlooked by domestic capital, and which have, over time been under represented in pension portfolios.
When pension schemes begin allocating capital towards listed infrastructure and real asset vehicles, secondary market conditions will improve significantly and with this new inflow of domestic capital the market will see bigger trading volumes, improved liquidity and closing discounts.
The effect on existing portfolio holdings will be marked as well as for future allocation decisions.
A sector worth revisiting
Listed investment companies have faced a challenging period in recent years, with persistent discount widening and weaker domestic demand weighing on valuations.
However, pension reform will begin to change those market dynamics.
A generation ago, UK pension funds were dominant owners of domestic equities. Today, their presence has diminished dramatically.
Even a partial reversal could materially alter demand dynamics in sectors that have experienced years of capital outflows and persistent valuation pressure.
For firms constructing long-term diversified portfolios, these developments alter and strengthen the case for revisiting investment companies and the need to do so before the elephants start to move.
No information contained in this article should be construed as providing financial, investment or other professional advice and should not be considered as a recommendation, invitation, or inducement to subscribe for, dispose of or purchase any such securities. Capital at risk. Past performance is not a guide to future performance.
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