Managers back DC scheme access to illiquid markets
The UK’s Investment Association (IA) has called for measures to allow defined contribution pension funds greater access to illiquid assets, such as infrastructure and property.
As part of the launch of a report – Putting Investment at the Heart of DC Pensions – at its inaugural policy conference in London yesterday, the asset management trade body said it was critical that “every saver has the ability to access the full range of investment opportunities”.
The investment universe had changed fundamentally since the introduction of auto-enrolment in 2012, said Chris Cummings, the IA’s CEO.
“Auto-enrolment is a game changer,” he said. “Investment is the beating heart of the pensions system and is one of the most important factors in determining the value of savers’ pension pots. That is why investment needs to be made a greater priority for defined contribution pension schemes.”
The IA has proposed a “new partnership between pension schemes and the investment management industry” around three central planks:
- Developing frameworks for responsible and sustainable investment;
- providing access to a wider range of asset classes, including illiquids; and
- building broader member engagement and confidence in long-term investing.
Jonathan Willcocks, global head of distribution at M&G Investments, backed the call to allow greater access to non-mainstream assets.
Speaking at the IA’s conference, Willcocks said: “My solution is to try to get illiquid assets away from [being seen as] just pure institutional assets, and bring them into a more retail space to give investors and savers a choice whether they take their pension pot at 65 and access more illiquid assets.”
Caroline Escott, policy lead for investment and defined benefit at the Pensions and Lifetime Savings Association, said it was essential to have an investment market that worked “efficiently, transparently and in the best interests of pension schemes and pension savers”.
DC schemes have been boosted by the introduction of auto-enrolment of workers into company plans in the UK since 2012. Under the auspices of the new programme, more than 9m new savers have been brought into the pensions industry, according to government data.
While such funds are allowed to access more illiquid assets, because of regulatory concerns over higher charges – and, in certain cases, performance fees – many DC schemes tend to invest in more traditional bond and equity options.
Earlier this month Mark Fawcett, chief investment officer of DC master trust NEST, said asset managers risked missing out on the rapidly growing DC market if they did not “raise their game” to provide new products to the sector.
“My challenge to you today, if you are in that business, is think about some of the comments I’ve made, and think about the right structures for this DC market,” Fawcett told delegates at an industry conference. “We are not the only scheme that will be growing strongly. I think it is a massive opportunity.”