PI Partnership – BlackRock
with selecting the best opportunities for your portfolio that are coming through what we call the non-commoditised sourc- ing venues. Will they give you the oppor- tunity to find cool deals.” Lomas then cites an example. “We have created a growth equity strategy with a partner of ours and have made three investments so far. The first is a company that replaces animal leather with plant- based leather. The technology is allowing us to use plant-based ingredients that have similar characteristics as leather to replicate animal skins but with a 90% reduction. When you are using that in high-end luxury goods, or for car seats, there is huge potential for the industry to bring innovation to the marketplace. “For us, that sourcing engine for bringing those deals to market is exciting. I would love for that to be in the realms of defined contribution schemes. “And finally, sustainability. You are invest- ing for between 10 and 40 years, so a defined contribution scheme has to take a long-term view. We believe climate risk is investment risk, and, therefore, sustaina- bility needs to be a key consideration of a retiree’s investment pot.”
Why should a DC scheme integrate sus- tainability into its investment process? “Number one is demand from the cus- tomer. Last year we surveyed members of defined
between 35 to 44 and 48% have a key con- cern around climate risk.² So, the mem- bership of the schemes we spoke to are fo- cused on this topic.
contribution schemes aged
“I would also encourage everyone to think about not just the climate aspect of this, but the societal aspect, too. And of the millennials – the growing cohorts coming into defined contribution schemes – 25% are very focused on the societal end ver- sus 15% of older generations.² “So, there is huge customer demand to address the issues of climate change and societal inequities. “Number two is regulation. ESG is being integrated into all pension schemes. By the end of 2022, the Department for Work and Pensions said it would assess the climate change risks to the £1.33trn of assets held in UK pension schemes.³ Ulti- mately, those findings are going to be published, and then it’s going to increase the scrutiny of schemes around the adop- tion of sustainability and climate change within their investment thesis. “So you have customer demand and regu- lation. The question is not are we going to be on a route to net zero, but how and by when. Our view is, as I mentioned earlier, that a 10 to 40-year view is mission criti- cal. There are interesting opportunities for defined contribution investors in the private markets versus their traditional publicly listed peers. “We have seen enormous demand. We
For professional investors only
raised more than £4bn for a fund last year that is focused purely on renewables.⁴ And in 2022, we launched an evergreen strategy to help solve energy security independence around the globe, obviously with a bias towards the European market. “But then I look at the transition to net zero. There is a £125trn gap between today and 2050 that needs to be funded to ena- ble us to get to net zero. Today, £1.25trn is being spent to close this gap, but we should be spending £4.5trn.⁵
“There is an enormous opportunity set that goes beyond infrastructure. It comes into private equity; it goes into real estate and it goes into the credit space to help companies on this transition. And around 85% of defined contributed savers are in net-zero targeted schemes.⁶ I would argue that they do not have access to these asset classes, because of the points I made ear- lier about fees and the opportunity. “We have to work together to unlock that potential. We have to make this exciting for retirees to encourage continued par- ticipation in the savings agenda we have.”
1) Source: BlackRock as of 30 June 2022. 2) DC Pulse, BlackRock, May 2021. 3) DWP, “Climate and investment reporting: setting expectations and empowering savers – consultation on policy, regulations and guidance”, October 21, 2021. 4) BlackRock, 30 June 2022. 5) Net Zero by 2050, International Energy Agency, October 2021. 6) DWP internal research based on public commitments made by schemes. DWP, “Climate and investment reporting: setting expectations and empowering savers – consultation on policy, regulations and guidance”, October 21, 2021.
The full interview with David Lomas can be viewed at
portfolio-institutional.co.uk/pi-partnerships/blackrock-msci-the-dc-private-markets/
Risk Warnings Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. ESG Investment Statements: This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This is for illustrative and informational purposes and is subject to change. It has not been approved by any regulatory authority or securities regulator. The environmental, social, and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process. Important Information This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer. © 2022 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLU- TIONS, and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.
Issue 119 | December-January 2023 | portfolio institutional | 17
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