Collins: We are seeing billion pound buy-ins that come with one year’s notice. In the past, we planned 10 years ahead. Now, we are getting surprises from improved funding levels, which is making the job harder.
That does not rule out illiquid assets. As a trustee you have to understand what illiquidity means, whether you have to exit at a discount or can exit at all. It is not a barrier to investment, but you have to think about it. Mattingly: From a fiduciary point of view, we have to consider the financial materiality of all this. We have to make sure it is in the members’ best interests to enter into illiquids. The future of private markets, especially in defined contribu- tion, is a platform approach that can create greater liquidity. The opacity of some illiquids creates suspicion and un- nerves trustee boards. So, there is an onus on private market providers to meet us halfway in making themselves more compatible with institutional investors. This means looking at how their charges are structured and being more transparent. We now have the Task Force on Climate-Related Financial Dis- closures, but prising data out of private markets is challenging, although, perversely, there is greater influence to make a differ- ence here. There is a close association between the owners of
12 May 2022 portfolio institutional roundtable: Private markets
those assets and what they can do with them. They are not one step removed.
In terms of liquidity, the perception with defined contribution schemes is that you need daily liquidity. You don’t. Provided that you have a blend of liquid and illiquid assets, of which you cannot go much beyond 15%, your cashflows and liquid assets could provide liquidity for most schemes. It is important to look at this in context. There is a desire in government to consolidate to create greater mass to invest in private markets. This goes back decades, but it has taken ESG to accelerate it.
I chaired a DC conference last summer and we predicted that in 10 years’ time master trusts would manage on average between £25bn and £100bn of assets. If they invest 10% of those assets in private markets, that is a huge wall of money entering the asset class in the next decade. Dobson: The manager selection decision changes depending on where you are in your scheme’s life. If you are approaching a position where you may need liquidity in your private markets portfolio, that may encourage you to go to the larger funds where there is a better secondary market.
I share the view on smaller and lower mid-market managers. There are more value creation and growth levers there, but a
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