PI Partnership – Newton Investment Management


One way in which larger DC schemes have been attempting to diversify in recent years is by investing in alternatives. However, most have faced difficulties accessing real illiquidity premia, as well as cost constraints. Again, with the benefit of hindsight, I am not sure that DC members have missed out by not being able to access these alternatives.


DC schemes looking to find better future diversification in their portfolios may consider investment trusts to be a good vehicle to enable them to have exposure to illiquid assets such as infrastructure; moreover, given that in recent weeks defined benefit (DB) schemes have been forced sellers of these assets, now could be a good time for DC investors to step in. Indeed, those members who self-selected a dynamic multi-asset strategy in place of the default are already likely to be doing so, given the compelling opportunity in this market.


Active, diversified capabilities


While fee caps and cost constraints can limit DC schemes in terms of where they are able to look to invest, what is clear is that there is an urgent need for more active, diversified capabil- ities, which can deliver real returns for members against a challenging market backdrop.


There are already plenty of large, liquid, scalable markets that the industry should be willing to offer at a lower fee for DC


clients, whether that is actively investing in global large-cap equities, global government bonds, global currencies or global commodities, especially if done quantitatively, where capacity constraints are not an issue. While more active default funds may be appropriate for younger DC investors, we need to increase engagement with end-beneficiaries and their advisers as they approach retire- ment to understand what they are likely to do with their pen- sion, as this will materially change their investment options and strategy. Our parent company BNY Mellon has been con- ducting extensive adviser research and focus groups – to bet- ter understand what members’ requirements are once they reach retirement, and to be able to offer more targeted strate- gies. The insights from this research have been instrumental in shaping our thinking around product development and solutions for the DC market. Ultimately, amid a painful market regime change, it is important to look forward rather than backwards, because relying on the models, maxims and assumptions of the past 40 years could not only be misleading, but also dangerous. I think time will still look favourably on the actions of DC trustees and CIOs over the past 10 to 20 years; however, their actions and decisions in the next few quarters will determine their future legacy.


Important information This is a financial promotion. These opinions should not be construed as investment or other advice and are subject to change. This material is for information purposes only. This material is for professional investors only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell in- vestments in those securities, countries or sectors.


Issued by Newton Investment Management Ltd. ‘Newton’ and/or ‘Newton Investment Management’ is a corporate brand which refers to the following group of affiliated companies: Newton Investment Management Limited (NIM) and Newton Investment Management North America LLC (NIMNA). NIMNA was established in 2021 and is comprised of the equity and multi-asset teams from an affiliate, Mellon Investments Corporation. In the United Kingdom, NIM is authorised and regulated by the Financial Conduct Authority (‘FCA’), 12 Endeavour Square, London, E20 1JN, in the conduct of investment business. Registered in England no. 1371973. NIM and NIMNA are both registered as investment advisors with the Securities & Exchange Commission (‘SEC’) to offer investment advisory services in the United States. NIM’s investment busi- ness in the United States is described in Form ADV, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request. Both firms are indirect subsi- diaries of The Bank of New York Mellon Corporation (‘BNY Mellon’).


November 2022 portfolio institutional roundtable: Defined contribution


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