Sponsored article
The anticipation of bulk annuity purchases reflects the increasing maturity and level funding of pension schemes in general. The overall average timescale to achieve long-term targets has fallen from 11.1 years in 2017 to 9.4 years in 2019, a reduction of 1.7 years. Aligned to this, there has been a significant increase in the adop- tion of a buy-out target since the 2017 survey – from 27% to 35%. We also see interest across a range of different illiquid asset class- es, such as infrastructure with 20 to 25-year time horizons, through to real estate, where we are seeing a shift to global property portfo- lios, and to more cashflow-generative private credit type investments.
THE CASE FOR ILLIQUIDS
Increasing levels of interest in illiquid asset classes as pension schemes explore alternative investment ideas can be explained by their potential to provide a more diversified source of return from more traditional markets as well as predictable levels of income. Il- liquid asset returns are predominantly driven by income with secu- rity offered by asset-backed or contractual cash-flows; and, or, sen- iority in the capital structure. The range of strategies available provides flexibility, in that they can form part of a scheme’s growth portfolio or part of its de-risking strategy. The income-orientated nature means they are likely to be used more defensively, while the lack of reliance on capital appreciation is also attractive in a range of market environments and scenarios.
BARRIERS TO ILLIQUIDS INVESTING We also asked respondents to explain, where applicable, what is preventing them from considering illiquid asset classes. The most cited reason (40%) is that schemes are exploring buy-in or buy-out in the near term. A third of respondents (33%) do not believe illiq- uid assets offer attractive risk-adjusted returns compared to liquid
markets. Just under a quarter (22%) gave as their reason for not in- vesting in illiquids a lack of resources or expertise to have a mean- ingful allocation. For schemes closest to buy-out, allocations to illiquids may not rep- resent the best option for their portfolio – locking down risks and liquidity are significant factors for ensuring assets that are easily transactable. But, for schemes aiming to achieve self-sufficiency, and depending where on their journey they are, illiquid assets can offer attractive risk-adjusted returns relative to liquid markets and generate cash to pay benefits when they fall due. Historically, meaningful allocations to illiquid assets have been the preserve of larger schemes. However, they are increasingly becom- ing more accessible to a broader range of schemes, for example, through partial delegation strategies, such as those offered by Aon.
About Aon’s 2019 Global Pensions Risk Survey
The Global Pension Risk Survey is an Aon survey, conduct- ed every two years, of the defined benefit pension scheme universe. 170 respondents replied to the 2019 UK survey, representing schemes of a broad range of sizes from less than 500 members to over 10,000 members. Nearly two- thirds of respondents were trustees, with the remainder primarily being a combination of pensions managers and corporate representatives. Respondents were asked what investment strategy changes they had made in the last 12 months, and changes they planned to make in the next 12 months.
For a copy of the research, email
talktous@aon.com
Issue 88 | November 2019 | portfolio institutional | 33
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 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
