Well, if you don't understand how markets work......

….then you’re not going to be all that good at designing structures to correct what you see as the failures of current markets. This being something the Social Market Foundation is guilty of in its latest report.

Their analysis is that there’s that plethora of lovely infrastructure projects that can usefully be done. They might even be correct there although we’ve our doubts. They then say that pensions money should be mobilised to fund those projects. Long term savings funding long term projects doesn’t seem to be a problem.

But, they muse, large projects are large, so pensions funds should be large so that they can fund large projects:

Urgent pension reforms should be undertaken to give Britain fewer and larger pension funds

with the scale required to make major infrastructure investments. Learning from Australia and

Canada, the UK should pursue a strategy of creating large “superfunds” able to invest in large

illiquid assets. Pension scheme charging rules should be reformed to allow funds of sufficient

size to pay management fees for infrastructure investments.

No, that’s nonsense.

For a start it’s terrible investment policy, to concentrate the risk of a large project into the one pension fund. For diversification is our friend here. Assuming that we desire pensions savings to fund these large projects we want many different pensions funds to each fund a slice of each different project. On exactly the same grounds that we have pensions funds to fund pensions in the first place, we have diversified investments. This is what the idea of the fund does, we agglomerate the savings pool then allocate it in small slices so that all potential pensioners gain access to that diversification they can’t get individually.

It’s also remarkably unobservant. London is home to the world’s deepest and widest financial markets. Where it’s possible to invest in stocks and bonds doing near anything. And to float stocks and bonds to fund near anything. The stocks and bonds performing that function of allowing the funding of large projects while also still offering diversification to each investor.

That is, the SMF’s proposal is wrong in theory and entirely ignores the fact that we’ve already solved the problem anyway. Not a great recommendation of the proposal really.