Phoenix Group urges NWF to work with insurers on investment structures to unlock capital

Written by Adam Cadle

20/05/2025

The UK’s National Wealth Fund (NWF) should work with insurers on investment structures to unlock capital, Phoenix Group has argued.

In its policy whitepaper, Unlocking Investment to Support the Net Zero Transition, Phoenix Group said there is “strong potential for the NWF to become a strategic partner for the pensions and insurance sector”. However, it added that the NWF’s current approach is primarily focused on unlocking bank capital, which operates within a different regulatory and market framework.

“The NWF’s current suite of guarantees are not fully aligned with the specific investment needs of pension funds and insurers,” Phoenix Group argued.

“One key issue is the NWF’s current position on make-whole provisions- a critical feature for many long-term institutional investors, which are not currently covered by its guarantees. While NWF guarantees typically cover 70-80% of principal and interest, they exclude make-whole compensation, unpaid interest in the event of early redemption, and ongoing interest payments in the event of default. Instead, they are structured to provide a single lump sum payment at project completion or maturity. This approach does not align with the requirements for MA eligibility under Solvency UK, which prioritises highly predictable, ongoing cash flows.

“Make-whole provisions are essential because they ensure that if a bond or loan is repaid early, the investor is compensated for the loss of expected future income-thereby preserving the asset’s cash flow profile. In the absence of such provisions, early repayments introduce reinvestment risk and cash flow volatility, reducing the asset’s suitability for MA treatment and increasing complexity for insurers managing portfolios under this framework. This misalignment creates a significant barrier to investment by institutional investors, particularly insurers. To address this, the NWF should consider expanding its guarantees to include make-whole provisions, thereby enhancing their utility for pension funds and insurance companies.

“Forthcoming Solvency UK reforms are expected to alter these requirements, potentially allowing insurers to accept guarantees that do not include make-whole provisions or cover cash flows through to legal maturity. However, the applicability and efficiency of such guarantees will differ across firms, and their suitability should be evaluated on a case-by-case basis through direct engagement with individual insurers.”

Phoenix Group argued that to ensure guarantee structures effectively support MA-eligible investment propositions, closer coordination is needed between the NWF, HM Treasury, the PRA and industry stakeholders. It said the dialogue should also take place through the ABI’s Investment Viability Group to foster a shared understanding of how institutional investors assess NWF guarantees.

On the issue of catalysing private sector investment, the paper said the NWF should focus on crowding in institutional capital in areas that would not otherwise meet investors’ risk-return requirements.

“The NWF should avoid competing with private capital by targeting areas where private investors are less likely to invest and working together with investors to provide a viable alternative to bank financing, thereby mobilising additional capital rather than crowding it out.”

Regarding the development of the UK infrastructure pipeline, Phoenix Group said pension funds and insurers would benefit from greater clarity on the pipeline of investable assets available through the NWF and GB Energy. To support this, it said the National Infrastructure and Service Transformation Authority (NISTA) should collaborate with the NWF, GB Energy and other public finance institutions to coordinate the development of a strategic infrastructure project pipeline as part of the UK’s forthcoming 10-Year Infrastructure Strategy.”

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