Up to £250bn in DC assets may be invested in private equity by the end of the decade, according to Hymans Robertson.
According to Hymans’ paper titled, Illiquid Investment Embracing the Opportunities, published today, based on a consensus view of returns, sizable allocations to private equity have the potential to improve retirement outcomes for DC investors in excess of 10 per cent.
Hymans found that there is room to significantly increase the retirement outcomes for millions of savers by introducing large allocations to illiquid assets more generally.
The research looks at several forms of private equity investments, with a focus on how to create a diversified portfolio to lower risk, control liquidity, and achieve total value. The research shows that pension plans have the opportunity to include greater sustainability and climate goals into their larger portfolio.
Hymans Robertson head of DC investment Callum Stewart says: “The last decade has been a time of change for the UK, with the government looking to encourage long-term investment in the UK economy and try to breakdown some of the barriers to investing in illiquid asset classes through initiatives such as the Patient Capital review, the ‘Levelling Up’ agenda and guidance produced by the Productive Finance Working Groups.
“Our research finds that there is a potential for exceptional net return from private equity investments, however, the variability of returns can be vast, and selecting high-quality managers will be crucial to longer-term success.
“However, taking such a risk can pay off and we found that there is the potential for up to £250bn of DC asset classes to be committed in this way by the end of the decade. A change of mindset is needed to truly deliver better outcomes for members, with a diversified thought process towards longer-term value rather than short-term cost.”
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