Mansion House Compact: spotlight on L&G

Legal & General Investment Management (LGIM) has been looking at private markets for nearly two years before committing to the Mansion House Compact, Jesal Mistry, head of defined contribution (DC) investment, said, and is gearing up to launch a solution later this year.

The solution will look across all private market assets and has been born out of research suggesting that clients want to allocate to a “broad range of opportunities, manage risk and diversify”.

He added that it will be a “mix of illiquid assets such as private credit, private equity, infrastructure and real estate, plus liquid proxies such as REITs – all sitting in a diversified, multi-asset solution alongside listed assets”.

He continued: “In this way, we can deliver on the daily dealing requirements of DC, while giving members more opportunities to access the potential diversification and performance benefits of private markets.”

Once LGIM launches the solution, it will work with the master trust trustees to integrate it into its core default, Mistry said.

He said: “Cost is a real challenge within this market because of this driver for low cost that has been around in DC for quite a long time.”

LGIM wants to give clients the opportunity to recognise the value that may come from a strategy that has a higher allocation to liquids, he noted.

“We did some testing at the end of last year, where we asked DC members whether they would be willing to pay higher fees for increased exposure to private markets, if they can deliver proof of performance. Almost three quarters of those that we spoke to said ’yes’, so that’s a good indication that there’s a potential opportunity here,” Mistry noted.

“We also asked clients and consultants how much more they would be willing to pay for a 10% allocation to private markets, and the general feedback was five to 10 basis points more to gain access to the potential benefits that we believe illiquids can provide,” he continued.

Mistry said this suggests that the “tide is turning” within the market to focus more on the value of the investment and not just the cost.

He said: “That gives us some confidence that if we go out there with a new strategy, people will look towards that approach going forward.”

At the moment, LGIM does have indirect exposure to private markets via listed private equity and listed real estate, Mistry said.

“From our perspective, that still gives us the economic exposure because these are companies that all they do is private equity investment. All they do is run real estate, they own properties, and they operate them, so we’re getting that indirect exposure,” he stated.

LGIM also has an allocation to private credit for people that come closer to retirement.

But Mistry said the solution it is launching this year is “all about taking that first big step into private markets” so signing up for the Mansion House Compact was “a natural step forward for us”.

Mistry pointed out that the compact’s call for 5% investment into unlisted private equity by 2030, is an important “statement of intent”.

“At this stage it is about exploring it. I don’t think we are at the stage where we can say we will reach it by 2028, because it’s all about what’s in the best interest of savers,” he clarified.

Mistry stressed that “a lot needs to change” within the market to allow this to happen, “even for us so we can commit to doing it”.

However, he pointed out that if no one invests in L&G’s solution because “it’s too expensive or operationally too challenging” then it’s “pointless”.

“We need to bring our clients and we need to bring the market along with us. By starting with this initial approach, working with the trustees putting solutions in place, and then moving forward from that point, that’s going to be the solution,” he said.

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