other things. But that has to change, and change rapidly, other- wise we will lose the compounding benefit of the gains we have made in what will likely be a volatile environment. On the alternatives point, I am not sure they were needed before. When we see equities likely to disappoint with rising inflation, with bonds not providing diversification, you need alternatives, not just infrastructure. We have to think more broadly about how we will preserve real returns, let alone grow them. Smith: We are all talking about accumulation, but the big chal- lenge coming down the track when peak defined benefit disap- pears and we are into true DC is delivering an inflation-linked income. That is going to be critical. One of my fears is that peo- ple are seeing their pension as a savings pot rather than some- thing to provide them with a long-term retirement income. Dealing with that mindset is a challenge. Then there is how do we provide income which is inflation protected.
How can investors access illiquid assets in a liquid form? Sheth: Investment trusts are popular. It is interesting that if you had asked me this a few weeks ago, they did not look great value. But now, if defined benefit schemes are stepping away
from listed investment trusts, it could be a great chance for DC schemes to step in. They are now a genuine liquid alternative and are not forced to sell underlying assets to manage redemptions. Bucksey: Holding illiquids via a pooled fund is hugely expen- sive. For example, the additional expenses of holding real estate are punchy. Even with aggressive negotiating, we are probably talking 150 basis points.
In an ideal world, if the way these particular charges are dis- closed, particularly the additional expenses could be a more level playing field, it would be an incentive for master trusts to allocate to these assets.
How will master trusts influence the portfolios of DC schemes? Humble: Scale, first and foremost. Master trusts will eventually replace the large DB schemes. They have the governance, the investment expertise and the external advice smaller schemes will never have. It is a great model to get something scalable and agile. That will be interesting to watch. Our master trust’s trustees are interested in what is going on in the markets, they are interested in illiquids and, when we speak, they are wearing their governance hat, so they are not
November 2022 portfolio institutional roundtable: Defined contribution
11
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32
