Trustees should embrace private markets to bolster returns and deliver against social impact commitments, using external advisers to help them navigate liquidity and complexity concerns.

That’s the message from speakers at this year’s Pensions and Lifetime Savings Association (PLSA) Investment Conference in Edinburgh, who yesterday made the case for the wider adoption of private assets within defined contribution (DC) pension portfolios.

The comments come just two weeks after the UK government closed its “Facilitating investment in illiquid assets” consultation with the pensions industry, which urged stakeholders to highlight the current barriers to embracing illiquid assets, such as those within private markets.

Addressing delegates at the PLSA conference, Joanna Asfour, global head of consultant relations at Partners Group, said risk associated with private assets can be “entirely manageable” within portfolios where asset allocations do not exceed 10%.

“If you have a 10% allocation, then it’s a manageable risk,” she said. “Trustees shouldn’t shy away from investing in private markets because of liquidity concerns. It’s worth running through a scenario analysis to get comfortable with it.”

Endorsing this thinking, Jess Williams, head of collective investment scheme (CIS) at Phoenix Corporate Investment Services, stressed that trustees should explore private markets to gain exposure to real assets and good returns to lift portfolios in the current high inflationary environment.

“From an investment case of widening the opportunities set, that’s what private markets give you,” she added.

Delegates heard how trustees often find private markets and illiquid assets complex, which can present a significant barrier. Performance fees were highlighted as another reason why schemes have historically not been comfortable with widespread allocations to this asset class.

However, Chandra Gopinathan, a senior investment manager at Railpen, told delegates in a separate seminar that trustees should also consider their fiduciary duty from an ESG perspective. He suggested that some schemes could achieve better social impact results by embracing private markets.

He said: “From a scheme perspective, I would look to take a step back. When we look at real world impact, are listed equities the best way to achieve that? Real world impact is probably less significant in a listed company than in a private, unlisted, early-stage company.”

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