London’s new lord mayor calls for UK wealth fund to back fast-growing businesses

The new lord mayor of London is looking to work with City institutions and the government to create an investment fund of up to £100bn to support fast-growing UK businesses.

Nicholas Lyons, the veteran investment banker and insurance executive, wants to use his City contacts to broker discussions on proposed financial reforms in the Square Mile after he takes over the largely ceremonial, year-long role on Friday.

As part of this, London’s 694th lord mayor will push for the creation of a UK pensions-backed fund that he believes could rival sovereign wealth funds such as those from the Middle East or Norway. “This is really about the long-term financial health of this country and the long-term financial future of pensioners,” he said.

“We have to create a scheme that enables 30 to 35-year-olds to put money aside to give them a proper retirement pot. Everybody’s [defined contribution] pension should have 5 per cent invested in this fund. Then everybody’s got a stake in the future of these British businesses, everybody’s going to benefit when they succeed.”

The UK was already creating the largest number of tech “unicorns” — companies worth more than £1bn — in Europe, he said, but was failing to keep them in the country as they grew.

“For decades, we have produced so many early-stage companies that have been successful and built up,” he said. “Yet the intellectual property, and the people and the value, have migrated — that is the biggest loss of productivity that this economy has faced. And nobody has tackled that problem.”

The reason for the loss of British businesses abroad was “that so many of these companies get invested in by sophisticated investors from the US or Canadian pension funds [or] sovereign wealth funds”.

On Friday, Lyons will formally take over at an event called the “silent ceremony” before the City’s annual lord mayor’s show on Saturday, at which he will swear his allegiance to King Charles at St Paul’s Cathedral.

The three-mile-long procession will include military bands, more than 50 decorated floats, mounted knights, a 1955 Austin Champ vehicle, and a large inflatable pig. The ceremony dates back to the 13th century, while the lord mayor’s ceremonial golden coach rides was built in 1757.

Lyons worked at Lehman Brothers until 2003, and has since held a number of non-executive positions mainly in the City of London. He will take a sabbatical from his position as chair of insurance group Phoenix, while in the unpaid lord mayor’s role.

The position makes him head of the City Corporation, the municipal governing body for the Square Mile, and an ambassador for the financial and professional services industry.

Lyons wants to use his year in the role to bring together parts of the City to address reforms of pensions and wider financial services regulation. On Monday, he will invite members of the Capital Markets Industry Taskforce — a group created by the London Stock Exchange — as well as City minister Andrew Griffith to Mansion House to start talks on these issues.

He conceded that the government might have “other priorities” over setting up a sovereign wealth fund as the UK heads into recession but said that companies in the City could lead the work.

The private sector needed to “put something together that stands on its own feet”, he said: “Between Aviva, L&G, Phoenix and M&G, we reckon we can get £50bn in three years that would invest in private equity, in early-stage companies across fintech, life sciences, biotech.”

But he would like to see this £50bn matched by the government. “We will put together an investment management entity a little bit like the Canadian private pension investment boards. Frankly, once that’s up and running, if the government says we’d like to put some money into there, that’s fine.”

He pointed out that Labour had already developed plans for a smaller version of a sovereign wealth fund. The City was “completely apolitical”, he added, but “would like to see some long-term thinking”. 

The failure to create a UK sovereign wealth fund — despite several attempts in the past — reflected the “risk averse” approach to regulations, he said.

“There is no shortage of money sitting in pension pots that can be directed in a way that would be helpful for the long-term future of this country. But at the moment, we’re really constrained from doing so by regulatory change, and by some legal constraints.”

The government said it already had a “number of programmes” to bring private sector investment into UK science and tech companies through the British Business Bank.

The City was not in favour of a “bonfire of regulation”, he added, but for the government to ensure that regulations were “agile and appropriate”. 

The UK’s financial services and markets bill being debated in parliament will give regulators a secondary objective to ensure the competitiveness of the sector. He said the City of London Corporation saw this as a step in the right direction.

“We need to give our regulators more of an obligation to be thoughtful about the competitiveness of UK firms,” he said, adding that the City was not in favour of the government’s proposed “call-in” powers to overturn regulatory decisions.

He said the Solvency II regime that governed the insurance sector was a key area where reform was needed. “We will [then] be able to allocate more capital to investing in long term infrastructure.”

Lyons also wants to use his tenure to help people facing financial difficulties by bringing together companies in the sector with plans and products that could help. “The great thing about the role of the lord mayor is that you can convene people at short notice, pull them together, and see if we can come up with something that is a plan that will help people navigate through these really tough times,” he said.