The Quoted Companies Alliance (QCA), a group of major UK-listed companies, has once again highlighted the need for institutional investors to demonstrate their alignment with the Mansion House Compact. This compact outlines mutual commitments between quotech firms and institutional investors, aiming to increase transparency in junior markets.

Background on the Mansion House Compact

The Mansion House Compact was introduced by the City of London to foster greater collaboration between quotech companies and large institutional investors. Its primary objective is to enhance transparency in the UK capital markets, particularly in the Junior Market, which includes AIM, Aquis, and other small-cap exchanges. By 2030, the compact requires members to ensure that at least 5% of their default funds are invested in unquoted equities.

Key Participants: Pension Firms and Their Committed Investments

A group of 11 prominent pension firms, including Aviva (AV), Legal & General (LGEN), M&G (MNG), and Scottish Widows, publicly pledged to meet the compact’s requirements. These firms agreed to allocate at least 5% of their default funds to unquoted equities by 2030. The aim is to increase liquidity in the Junior Market while offering institutional investors access to high-quality companies with growth potential.

Current State of Implementation

However, as of the first anniversary of the compact’s implementation last month, the figures reveal a stark reality. Only 0.36% of default funds across all signatories are currently invested in unquoted equities, amounting to approximately £793 million. This disparity between the stated commitment and current investment practice has raised significant questions among stakeholders.

Uncertainty and Call for Data

The QCA’s chief executive, James Ashton, emphasized that the lack of transparency around these figures is a critical issue. ‘What we don’t know is if [the compact] has had any effect whatsoever in the first year,’ Ashton stated during an interview with the Investor’s Chronicle. The absence of comparative data undermines the credibility of the compact’s impact and has prompted Ashton to urge signatories to provide updated information.

Calls for Transparency and Accountability

Ashton stressed that without comparable figures, it is impossible to assess whether the compact has delivered on its promises. ‘If you want to be credible,’ he said, ‘you need to show us how much of their default funds have been invested in unquoted equities.’ This call underscores the QCA’s commitment to ensuring transparency and accountability within the compact framework.

The Role of the Quoted Companies Alliance (QCA)

The QCA has played a pivotal role in promoting the Mansion House Compact, but its effectiveness remains under scrutiny. By monitoring and evaluating the implementation of the compact, the QCA aims to ensure that all parties involved are delivering on their commitments. The QCA’s efforts highlight the importance of institutional investors aligning their strategies with broader market objectives.

Challenges in Implementation

The slow uptake of unquoted equities among institutional investors presents significant challenges for the Junior Market. Despite the compact’s provisions, many firms continue to allocate a majority of their investments to quoted equities, limiting liquidity and access to emerging opportunities.

The Need for Further Action

Ashton called on signatories to take immediate action to ensure that the compact delivers its intended outcomes. ‘If you want to be credible,’ he said again, ‘give us the numbers.’ This call for accountability reflects the QCA’s determination to hold all parties responsible for their commitments and ensure that the compact remains a robust tool for market development.

Conclusion

The QCA’s efforts to promote the Mansion House Compact are crucial for advancing transparency in the UK capital markets. However, the slow implementation of its requirements highlights the need for greater accountability and collaboration among institutional investors. By providing updated data and ensuring compliance with the compact’s commitments, all parties can work together to foster a more vibrant and inclusive market environment.

This article is a condensed version of a longer piece that provides deeper insights into the strategies being employed by institutional investors in pursuit of their mandates. For a comprehensive understanding of the Mansion House Compact and its implications, readers are encouraged to explore additional resources on the subject.