Legal & General, the UK’s biggest pension fund manager, has unveiled plans to begin lending to medium-sized UK companies, in one of the boldest challenges to bank financing yet.
Nigel Wilson, L&G chief executive, made a series of significant comments recently around the current state of the UK banking system and how the £440bn asset insurance giant is developing a series of ideas on how to better use this jumbo-sized cash pool to (and these are his words) “provide socially useful products.”
Now, I don’t know about you, but my natural inclination is to be wary of massive, juggernaut operations talking street-level economics. Let’s face it the realities of running a £440bn enterprise are challenging I’m sure, but they are also pretty irrelevant to the millions of smaller enterprises throughout the UK.
However, I was really taken aback when Nigel Wilson said the following.
[blockquote]“We will step up and take over the roles that the banks have fulfilled over the last 20 years.
The banking model… based on excessive leverage… is inherently unstable.”[/blockquote]
He continued stating that one of the most pressing problems was the extremely short timescales that the vast majority of bank lending is based upon. L&G will be looking to provide financing vehicles with seven – 50 years windows, potentially creating a whole new model for UK businesses looking to raise debt.
So, using pension funds to help finance UK business. Hmmm, who would have thought!
Of course, a giant like L&G is really looking at large or larger medium-sized companies. But the principle is the same. Pension funds being actively invested in UK business for the good of the individual and the good of the business.
There is a significant market that will not be served by the likes of L&G. The millions of small and medium-sized businesses that are equally deserving of support and it is here that pension-led funding becomes relevant and indeed, critical.