Baroness Bowles of Berkhamsted (LD)

My Lords, Amendment 111A would add the words “as determined by the underlying assets in any structure or fund” after “qualifying assets” in new Section 28C(1). Its purpose is simple: to ensure that when measuring investment in private markets via collective investment vehicles, we look at the underlying assets, not the wrapper in which they are held; we look at where the money goes, not the route it takes. In debates on the Bill, I have been tracing the consequences of the Government’s approach to private markets. On the first day, I set out the competition concerns inherent in the Mansion House Accord as transposed in the Bill. Last Monday, I explained the role that listed investment companies play in transparency and valuation of private equity, as recognised by the Bank of England and the ICAEW. On Thursday, I explained the range of infrastructure that they fund and the regulatory changes that are designed to make investment easier but that have not been given time to work. Today, I turn to the policy history of how long-term asset funds, LTAFs, were developed as an open-ended alternative to the closed-ended listed investment company and what was and was not agreed. The LTAF was developed through the productive finance working group, co-chaired by the Governor of the Bank of England, the chief executive of the FCA and the Economic Secretary to the Treasury. It was supported by senior representatives of the PRA, pension schemes and investment managers. It was an unusually high-level and accelerated process, driven in part by the then Chancellor’s public commitment to have the first LTAF launched within a year. Precisely because of that elevated framework and compressed procedure, it is all the more important that we adhere to what the working group actually agreed. The record is remarkably consistent. Across almost every meeting of the working group, the minutes recognise that there were two established routes for accessing long-term illiquid assets: the new LTAF and the long-standing listed investment company. From the very first steering committee meeting on 26 January 2021, the minutes record that “closed-ended funds facilitate investment in productive finance assets … Some members believed existing fund structures, such as investment trusts, were sufficient … several members suggested … adapting existing vehicles, such as investment trusts, rather than developing a new open-ended fund structure”. At the first technical expert group meeting on 12 February 2021, the Investment Association stated explicitly: “The proposal does not intend to replace existing structures”. At the technical working group on 20 April 2021, it was confirmed that the LTAF was to “complement, rather than replace, existing structures”. Later in the process, on 4 May 2021, the steering committee agreed: “The LTAF is not the only structure for investment in less liquid assets”. The final road map, published in September 2021, reinforces this, stating: “There are a range of ways to invest in less liquid assets, and all of them play important roles”. In practice, for DC schemes and retail investors, those routes are the LTAF and listed investment company. Nothing in this policy process—not the minutes, road map, FCA contributions or the IEA’s own presentation—ever suggested that Parliament should legislate a single wrapper preference or exclude the listed wrapper route to private assets. On the contrary, the working group recognised two parallel structures capable of holding productive finance assets. It was explicit that the LTAF was to complement not replace the existing one. When the public policy process is this clear, it is difficult to see why a private agreement should be allowed to override it. Yet the Bill does that, and the Minister says it is because of the Mansion House Accord. The effect of the Bill is therefore threefold. It is anti-competitive because it removes a functioning structure from the market and mandates a single route for accessing the same underlying assets. It is anti-policy, because it contradicts the working group’s own record—a record developed by the Bank of England, the PRA, the FCA and the Treasury, all of which recognise that listed investment companies already perform this role and were never intended to be displaced. It is anti-transparency, because it excludes the only structure where private assets are accessed, with all the benefits of public market transparency, daily market valuations, regular auditor disclosure and shareholder engagement, including AGMs and independent boards to hold managers to account. The consequences do not stop at the DC default funds. Last night, one of the most senior asset management figures emailed me to say that this is not just a matter for pension schemes. Excluding listed investment companies will widen discounts to net asset value, with direct detriment to retail investors. Next, let us examine the evidence of the origin of this exclusion. At Second Reading, the Minister said, “we have aimed to stick closely to the scope of the Mansion House Accord, which itself is limited to investments made by unlisted funds”.—[Official Report, 18/12/25; col. 938.] That is at best an approximation and, in substance, not true. There is no such definition in the accord. It points to underlying assets, explicitly defining that: “UK private markets means where the underlying assets are based in the UK”. It knows the difference between an asset and a wrapper. The Minister’s letter after Second Reading says that the exclusion is to support the Mansion House agreement. That is even more approximate and perhaps an admission that it is not in the accord after all, but something done afterwards and now being justified in its name. Treasury officials have said in meetings that the pension funds want it, but there is no public record of any such request. If the accord itself does not say it, the Government are doing it on the basis of something else. I must ask again: who asked for this exclusion? Where is the written evidence? It is not in the accord, any consultation or any published policy. It is not in the working group minutes, the road map or any regulatory framework on LTAFs or listed investment companies by the FCA. I have elaborated publicly available evidence showing that the policy process recognised two parallel structures. What written evidence can the Minister show the Committee that supports the exclusion of one of them? If the Government are relying on private representations, Parliament is entitled to know what they were and who made them. I have written evidence from DC default pension providers and Mansion House Accord signatories, representing a substantial majority share of the auto-enrolment market. They say that the exclusion of listed invested companies was not something they agreed to or understood to be part of the accord. Some have been going back through their meeting records to check. Others have said that they had not realised that this was a provision in the Bill; that they are neutral on the wrapper; and that they thought that the exclusion meant only listed equities, not investments within a wider listed investment company wrapper, and would be against that exclusion. Others said that they use listed investment companies and would not want this. I have my evidence and more is still coming. Where is the Government’s? This exclusion was devised within government without a proper evidential basis, or it is being done to please interests that have not been put on the public record, or Ministers have simply not appreciated the implications of what is being proposed. None of those possibilities is a sound basis for legislating away a long-standing structure with a clear history of positive economic outcomes. It is explained as suitably targeted guard-rails. These are the kind of guard-rails over which you are thrown to the lions. We are being asked to legislate a single-wrapper mandate on the basis of assertions not supported by the public record. If the Government wish to exclude a structure that the Bank of England, the PRA, the FCA and the Treasury itself recognised as valid, they must show the evidence. My amendment would restore the position that the working group adopted: what matters are the underlying assets, not the wrapper in which they are held. I beg to move.