Up to £200bn of defined contribution (DC) assets could be committed to private debt investment by 2030, according to the latest analysis from Hymans Robertson. However, a shift in mindset is required to meet this goal, according to the firm’s research.

Hymans Robertson today published a paper titled Illiquid Investment: Embracing the Opportunities, proposing that private debt has a role to play in all stages of the DC glide path.

It added that there are “significant opportunities” in private debt investment which could lead to improved outcomes for members.

There is also the opportunity for pension schemes to integrate their climate and wider sustainability goals in line with the broader portfolio, Hymans Roberton said.

In order to access these opportunities, Hymans Robertson outlined the initial steps that pension schemes should take:

  • Educate – when receiving training on illiquid investing more generally, it said pension schemes should seek specific guidance on private debt investment. This should cover risk and return characteristics as well as social and environmental impacts
  • Engage – engage with pension providers and advisers to understand how to access private debt investment opportunities. It added that platform capabilities will be key. This is an important engagement area to drive support for DC schemes well into the future
  • Review – as part of the next review of their investment strategy, it said pension schemes should explore how private debt and other illiquid assets can be used to improve outcomes for their members. As part of their next provider review, it added that schemes should attribute a weighting to platform capability, given that lack of functionality could stifle their ability to deliver good outcomes for their members over the long term
  • Implement – If pension schemes identify opportunities to improve outcomes, they should take action to capture these for the benefit of their members, it said. It added that pension schemes should work with their provider and advisers to develop plans to introduce allocations to private debt and illiquid assets over a reasonable time period
  • Communicate – it is also encouraging pension schemes to share positive stories about the action they are taking to improve outcomes with their members. Private debt investments have the potential to create engaging stories about how scheme members’ money is being used to build a more sustainable future, it added.

Oliver Hook, DC investment consultant at Hymans Robertson, said: “We are on the brink of a sea-change in the DC investment landscape. We have seen the UK government begin to encourage investment from pension schemes into private markets through initiatives such as the Patient Capital review, the introduction of Long Term Asset Funds, and now the Mansion House Compact.

“The barriers are gradually being broken down and our ambition is that parity will be achieved between DB [defined benefit] and DC with regards to accessing private markets.”

He added that Hymans Robertson believes that private debt has a role to play throughout DC glide paths due to its “heterogeneity, diversification benefits, and stable income streams”.

He continued: “It is our view that private debt and other illiquid assets will improve outcomes for DC members and we continue to push for further evolution from the industry in this area.”

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