COVER STORY


If you look where the DB market has ended up and use that as a rough proxy, it’s kind of that 10-20 per cent area that I think we’ll see


Despite these challenges, there are already


several ways in which schemes of all sizes can diversify their defaults. Ms Nazarova-Doyle says: “It’s not that difficult, it’s not impossible… if [trustees] wanted to they could do it right now but it’s just not as easy as investing in an index fund that is daily dealt. “I’ma big supporter of the idea that these


schemes need to just step up and manage their own liquidity rather than expecting managers to do it.” Some schemes may want to have exposure to private markets but control risk and liquidity. They


DC asset values top £60bn 12 to 99


100 to 999 £bn


10 20 30 40 50 60


0


being allocated over time Jon Parker, Redington


therefore opt for a 50:50 fund, which is part illiquid and part liquid but is daily dealt. “But what happens is those managers then


charge quite a lot of money for that, and you dilute your outcome substantially because a lot of investment in the fund will be daily dealt to give you that daily liquidity,” Ms Nazarova-Doyle says. This means that the schemes “end up with an


interesting but expensive product that maybe doesn’t give you the results that you actually want from private market investments”.


Reported assets in occupational DC schemes with 12 or more members by scheme size since 2010


1,000 to 4,999 5,000+


Education needed to boost understanding Another option is simply to access alternatives via listed vehicles. Real estate investment trusts have long been a feature of UK markets, for example, and as of this year London boasts the world’s first exchange that solely exists to securitise real estate assets. Mr Jaffray agrees, noting that “the simplest


way, and maybe the crudest way, is just to invest in listed alternatives”. But he adds: “You don’t necessarily get the diversification because it tends to be invested in shares that exhibit those kinds of characteristics and those shares go up and down with the market.” Another way is to invest in certain pooled funds


that have already been established, Mr Jaffray says. “Those pooled funds could be daily dealing


funds, or they don’t necessarily need to be daily dealing funds – they could be less frequent if the scheme is big enough and has the governance appetite to manage that,” he says. He adds: “The third way is to find some


way of essentially building your own bespoke arrangement to private equity, and to find a way of pricing that and to include it within your scheme.” Some big overseas funds, such as the Australian


Source: TPR


Assets in workplace defined contribution schemes have soared over the past fewyears, with the introduction of auto-enrolment accelerating this growth by getting more workers saving into a pension plan. The Department forWork and Pensions’ consultation on illiquid assets states that, as assets increase and if consolidation continues, “there is clear potential for the nature


of the UK DC market to evolve”. The Pensions Regulator recently called for some small schemes to quit the market, after its DC research showed underperformance in smaller plans, highlighting why they must improve or wind up to protect savers. As schemes consolidate into larger schemes, the scale should help facilitate access to alternative investments.


supers, already do this. With scale building in UK DC, Mr Jaffray expects some of the larger UK master trusts to go down this route at some point, too. Vineet Sood, senior investment consultant at Dalriada Trustees, says that part of the problem is trustees not being fully aware of what they can and cannot do, assuming illiquid investments are not allowed as part of regulation. “Educating trustees on those options is quite a


good starting point,” he says. “I think it requires more fund managers to be on board to support that environment where they’re giving the options to DC schemes to invest in those kinds of areas.”


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