capaDATA
  • PERFORMANCE
    • Younger saver, 30 years to retirement – 5-year annualised returns
      • Line chart
      • Bar chart
    • Younger saver, 30 years to retirement – 3-year annualised returns
      • Line chart
      • Bar chart
    • Younger saver, 30 years to retirement – 1-year annualised returns
      • Line chart
      • Bar chart
    • Older saver, 5 years to retirement – 5-year annualised returns
      • Line chart
      • Bar chart
    • Older saver, 5 years to retirement – 3-year annualised returns
      • Line chart
      • Bar chart
    • Older saver, 5 years to retirement – 1-year annualised returns
      • Line chart
      • Bar chart
  • RISK/RETURN
    • Risk/Return – Younger saver, 30 years from retirement, 5-year annualised
    • Risk/Return – Younger saver, 30 years from retirement, 3-year annualised
    • Risk/Return – Younger saver, 30 years from retirement, 1-year annualised
    • Risk/Return – Older saver, 5 years from retirement, 5-year annualised
    • Risk/Return – Older saver, 5 years from retirement, 3-year annualised
    • Risk/Return – Older saver, 5 years from retirement, 1-year annualised
  • PROVIDERS
    • Aegon Master Trust
    • Aon Master Trust
    • Atlas Master Trust
    • Aviva Master Trust
    • The Bluesky Pension Scheme
    • Ensign Retirement Plan
    • Fidelity Master Trust
    • Legal & General Investment Management – WorkSave Pension Mastertrust
    • LifeSight (Willis Towers Watson)
    • Mercer Master Trust
    • National Employment Savings Trust (NEST)
    • Now: Pensions
    • The People’s Pension
    • Salvus Master Trust
    • Scottish Widows Master Trust
    • Smart Pension
    • Standard Life DC Master Trust
    • SuperTrust UK Master Trust
    • TPT Retirement Solutions
    • Welplan Pensions
  • Research
    • ADVISERS
      • Pension provider selection factors
      • Switching
      • Diversification
      • Illiquids
      • ESG
      • Green
      • Digital
      • Consolidation
    • PROVIDERS
      • Master Trusts by number of members
      • Master Trust defaults by assets and number of employers
      • Member charges
      • Employer charges
      • Master trust investment advisers
      • Equity exposure
      • Derisking
      • Asset managers used
  • NEWS
  • MORE
    • About
    • Advertise
    • Contact us
    • Privacy policy
    • Content syndication
    • Terms & Conditions
CAPA
No Result
View All Result

DC schemes should increase exposure to alternative assets: PPI

26 March 2019
Bond managers pessimistic about economic outlook
Share on TwitterShare on FacebookShare on LinkedIn

The Pensions Policy Institute has published a new report, which examines in detail how DC pension schemes can increase their exposure to illiquid and alternative assets.

This report sets out the various challenges, be it costs or regulatory, operational and governance hurdles. It also looks at strategies to overcome these challenges. 

It points out that the increase in scheme size – through the consolidation of master trusts and the wider take-up of auto-enrolment  – could address many of these challenges. 

The report comes as the Department for Work and Pensions, the Treasury and the FCA are consulting on the best way to enable pension schemes to invest more of their assets in these less traditional asset types. 

According to the PPI the vast majority of DC assets (76 per cent) are currently invested in listed equities and bonds. A further 5 per cent of assets under management are invested in cash, with the remainder invested in multi-asset and alternative funds. 

The PPI report clearly sets out the advantages for DC pensions to invest in a broader range of assets. 

It points out these illiquid and alternative assets (such as private listed equity and hedge funds) can offer better diversification, as these assets are not generally subject to the same market forces as publicly-listed equities and bonds, and therefore may not suffer losses at the same time. 

It also adds that these assets often provide long-term returns at or above inflation, and may therefore be suited to pension investment. They also have the potential to deliver a higher, more secure return, net of charges, over time than liquid assets. 

However the report points out that despite these advantages there are a number of hurdles preventing DC schemes accessing these asset at present. These include:

  • Higher costs – costs are often higher than more liquid assets
  • Operational challenges –  it can be difficult for schemes to integrate illiquid and alternative assets into their investment strategy for a number of reasons, this can include difficulties in valuation of assets, the sharing of risk/ return across different cohorts, and the variable charges and performance fees that are associated with these asset classes. In addition there may be a shortage of supply to these asset classes, particularly via platforms.
  • Governance and regulatory challenges – the complexity and a lack of transparency can make it harder for scheme to do their due diligence, and can interfere with schemes fulfilling their obligation to report on costs and charges. 

In addition the PPI points out that Permitted Links regulations have been interpreted as not allowing in investments in assets which do not allow immediate access to funds, though the FCA intents to clarify the wording around these regulations to make it clear that investments in illiquid and alternative assets is allowed. 

The PPI report adds that growth, consolidation and the closure of some small schemes could play a key role in overcoming both operational and cost challenges. It estimate that DC assets under management are expected to increase from around £280bn in 2017 to £1.68 trillion by 2030. 

At the same time changes to and clarification of regulations may help facilitate more DC scheme investment into these assets. 

It says an increase in demand from schemes for these assets should ideally result in investment and development by platforms, leading to a change to the daily valuations and dealing practices of DC platforms, so that assets which are valued less frequently are catered for. 

It does add though that asset managers may need more guidance from the regulator on reporting on charges and transaction costs for these assets.  In order for schemes to find it easier to comply with disclosure regulations, asset managers may need a prescriptive framework for reporting charges that appear more opaque or vary over time.  It points out that the Cost Transparency Initiative is planning to produce templates for this purpose. 

The PPI adds that advancements in education and a more “holistic communications approach” – involving consultants, investment managers, platforms and providers – might be necessary to encourage more reluctant trustees to consider these assets. 

The report adds that there are methods for calculating the proportion of funds in DC schemes that can be invested in illiquid and alternative assets, to ensure there is sufficient liquid capital to meet ongoing expenses.  

 

TweetShareShare
Previous Post

Welplan Pensions quits master trust sector

Next Post

Gender pensions gap widens: new research

Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy

Category

  • By Provider
  • News
  • Not for search
  • Provider page archive
  • Uncategorized
  • video
CAPA data

© 2019 Definite Article Media Limited. Design by Bedazzled Media Limited.

  • About
  • Advertise
  • Contact us
  • Privacy policy
  • Syndication

Follow us

No Result
View All Result
  • About
  • Advertise
  • Contact us
  • Privacy policy
  • Syndication

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish.AcceptReject Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.

SAVE & ACCEPT