exposed. It is interesting that many of the Australian plans are defined contribution and are opening offices in London to invest in private markets.
The point about illiquidity and private markets is interesting. Some investors who moved into the asset class are not just maintaining their allocations, their exposure is growing larger and larger. Sumpster: The Australian and Canadian models are interesting because they run two distinct origination strategies. One is direct investing, which gives them more control over their investments.
The other is to use best-in-class asset managers to not only pro- duce attractive returns, but to invest in sectors and geographies that complement in house origination capability. And there is such a diverse choice of managers, from sector specialists to generalists. There is a whole sub-set of asset classes out there, with different liquidity profiles needing dif- ferent approaches and expertise. Job: The comments on liquidity are important. People want liquidity, but they may not necessarily need it.
Sometimes you are given liquidity but do not know what to do with it. So, getting to the bottom of why you need or want liquidity is important. Collins: I had to wind up a plan a few years ago and we could not sell some assets for 10 months. That is an extreme case, but as a trustee you need to know what illiquidity means for the asset you are going into. Sometimes it is not a genuine issue, sometimes you cannot sell the asset for love nor money and sometimes you have to apply a discount. If the return potential is high, taking a 5% hit and a few months to get out is fine because it will outperform. The challenge for trustees is a faster journey to buyout than expected. That should not be a reason to never invest in any- thing slightly illiquid, but it has become harder for a trustee to decide what their tolerance for illiquidity is and how to judge that when constructing a portfolio. Humphreys: It is about having the endgame clearly mapped out. There is a big difference between the large funds, which have multi-decade horizons, and smaller schemes who want to get out as soon as they can but the funding is not there.
May 2022 portfolio institutional roundtable: Private markets
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