daily liquidity, but schemes are constrained by it. Liquid infra- structure is a great way to start but it is linked to equities. It is about trying to get that breadth of diversification, particu- larly in the later years. We have found that people are in annu- ity-targeting investments when they have no intention of tak- ing an annuity. When it comes to value you have to make sure members are invested in the right places, let alone getting the right investments throughout the journey.


Is the regulator happy that DC schemes are investing in infrastructure? Smart: We have always encouraged DC schemes to look as widely as possible at what investment opportunities are open to them that will deliver good outcomes for members. But they need to be aware of the difficulties of investing in illiquids and how they would deal with those difficulties. It is about understanding whether the assets you invest in pro- vide the diversification you need and also the impact valuation and charging methodologies have on different members. We are seeing what happens with illiquid assets when there is stress in the market and illiquidity starts to bite. Trustees of DC schemes using illiquid assets need to have a plan for how they will deal with that in their pricing. Delo: It is not an easy action. There are still lousy infrastructure investments out there, so government cannot just say: “Go and invest in infrastructure.”


There is a nervousness about government spending the money under their control, let alone letting them tell us what to do with money under our control. If there are worthwhile infra- structure investments out there, as an industry we will find them, regardless of government directives. Paul Bucksey: There is a massive difference between what a large single employer trust may feel it is able to do compared to a master trust that has to balance returns against price. I am not convinced that employers and consultants have moved away from price in absolute terms.


The charge cap has shone a light on the absolute price. We still see ridiculous pricing in the market, which is not an incentive to invest more.


The master trust versus non-master trust piece is a different kettle of fish. We are competing pretty aggressively at times. We have to generate great returns, invest sustainably and look at infrastructure, but do it cheaper. You cannot square that cir- cle. Something has to give. Regulation would help but is not the sole answer. This drive to the bottom on price that we have seen for years is not healthy from an investment perspective. Fearn: As a consultant, we are mindful of value for money, not cost. When we do selections for master trusts, we do not put cost in the mix. We are trying to move employers towards look-


10 November 2022 portfolio institutional roundtable: Defined contribution


ing at how the master trust is helping them to deliver for their members. Cost comes as a secondary part of that. What we find is that master trusts feel they need to cost simi- larly to compete. That is frustrating. If we are going to do more infrastructure and ESG, the governance cost will be higher. Mitesh Sheth: Looking at it objectively, I cannot blame anyone for going for the lowest cost over the past decade when a rising tide lifted all boats. Frankly, did you need alternatives to deliver reasonable returns?


In that context, would it be sensible to take the cheapest, simplest strategies and put them to work to maximise return for lower costs when those are two of the only levers you have outside of contributions? But we are coming to a regime shift where we cannot rely on market returns to deliver real returns over the time horizons we are talking about. We are dealing with structurally higher inflation and volatility, and so have to be more discerning about where are we going to find returns.


If we cannot get more in terms of contributions, if we cannot change the outcomes, what you have left are investment returns and fees. We have been allowed to get a little lazy, but that has not been terrible. It was okay to focus attention on


One of my fears is that people are seeing their pension as a savings pot rather than something to provide them with a long-term retirement


income. Philip Smith, TPT Retirement Solutions


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