Putting the (market) cap into state capitalism

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Without too much fanfare, the ONS dropped its latest Financial Survey of Pension Schemes data, covering the aftermath of LDI-mageddon.

As well as putting data to things we already suspected (eg that private defined benefit schemes (DB) dumped corporate bonds to fund collateral calls), one unheralded development stuck out.

Private sector defined benefit schemes have been shedding their equity holdings at a fairly rapid clip for reasons we’ve discussed many times. This trend continued in the fourth quarter of 2022, and the ONS reckons that equity holdings for both DB and defined contribution (DC) pensions combined ended around £130bn lower than they began the year.*

If this trend continued through the first half of 2023, the total value of global stock holdings on the part of UK private pension will be worth appreciably less than a single Elon Musk. And that would be after writing Twitter down to zero.

But the interesting bit is that UK public sector pension scheme holdings of stocks now eclipses private sector holdings. And by public sector pension scheme, I mean overwhelmingly the UK Local Government Pension Scheme (LGPS).

At around £485bn, public sector DB assets are much smaller than the £1.4tn of assets held by private DB schemes. But this is a case of a large fraction of a smaller number being bigger than a small fraction of a larger number. Public sector DB schemes hold around half of their assets in stocks. That compares to around a ninth of private DB assets.

Having public sector schemes control greater portions of the market than private schemes isn’t unusual for most countries. By international standards the UK has a very well-developed private asset-backed system.

But it’s worth marking the moment at which — at least from a pension rights perspective — current and former UK local government employees hold greater sway in equity markets than their private sector counterparts.

* There are problems with the ONS’s defined contribution data. The ONS reckons that DC assets totalled £223bn at the end of 2022. While DC trust asset data is collected by the Pensions Regulator, DC contract asset data is fiendishly hard to obtain, and this correspondent guesses it is absent from the ONS data. Unfortunately, we can only work with the data made available.