There are a lot of private market assets where you do not know what they are worth until you sell
them. Martin Collins, 20-20 Trustees
secondaries fund will often give a greater discount on emerg- ing managers than a blue chip manager. That may be a factor in your decision, depending on which stage your scheme is at. Sumpster: If you look at the market makers which have emerged in the past five years, the secondary market fund of fund strategies have been proven to making substantially higher returns than many primary funds. That suggests the liquidity shortfall is being solved and with more secondary market managers arriving, so greater liquidity will be available in private markets. So, we can talk about liquid assets and less liquid assets rather than pure illiquid, which feels like they are buy and hold with no exit opportunity. In reality, within weeks or months you can sell out of performing positions in an active private market. Collins: There is a related issue for defined contribution mar- kets, which is the lack of daily pricing. There are a lot of private market assets where you do not know what they are worth until you sell them. So, the challenge with defined contribution is, are you pricing them fairly when members allocate their funds? Mattingly: There is also the charge cap, which is a challenge to squeeze illiquids into.
14 May 2022 portfolio institutional roundtable: Private markets
Collins: ESG is interesting. The most exciting impact invest- ments in the E and the S spaces are made in private markets. With the G you have to be careful. There are more expenses and risks than you have in the public markets. It is worth the hassle because the returns are there along with different opportunities. That is why trustees like private mar- kets, but there are additional risks.
Is it easy to build an ESG portfolio in private markets? Mattingly: No. The Cushon Master Trust is still constructing that 15% attribution to private markets.
On the equity side, which is ESG orientated, we are invested through an index. There is no annual management charge, so the manager gets a cut from the alpha positions they take. That is the only way we can keep the 15% within the charge cap. A lot of due diligence goes into this. Once you have done yours, the platform provider will do theirs. So, there are layers of due diligence. Coming back to the liabilities. They are reasonably controlled within the DC environment. Within DB, if it is not through a fiduciary manager, you can find that your potential liability
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