USS offers DC members access to private markets

Universities Superannuation Scheme, the UK’s largest private pension scheme with £63.6bn (€75.3bn) in total assets, has moved to allow members of its defined contribution (DC) “Investment Builder” funds access to its private markets investments.

The move comes as its DC assets under management have exceeded £1bn, a statement has revealed.

The fund said private market assets have been difficult to provide to DC members in the UK because they are not traded daily and incur high charges, in addition to being highly illiquid investments.

From March, around 85,000 DC members will see the investment remit of their funds in the Default Lifestyle Option expanded to include an allocation to private markets – the fastest-growing part of the USS investment portfolio – which have hitherto only been available in the defined benefit (DB) section.

For USS, this means around 320 private markets assets will be accessible, which include infrastructure, property, private debt and private equity.

These assets include a substantial investment in on- and offshore windfarms and major stakes in critical UK infrastructure such as Heathrow, Thames Water and NATS, the air traffic control business, it said.

Bill Galvin, USS group chief executive officer, said this initiative wiil not only give the fund’s DC members “access to a range of private market assets where USS’s approach has led the pension fund market,” but it also highlights the innovative ways in which “we continually look to enhance our offering to members.”

The private markets portfolio is run by a dedicated team in the scheme’s investment management subsidiary, USS Investment Management Limited. The private markets group was first established in 2007 and has a portfolio worth more than £17bn.

Having in-house investment capabilities through its investment management subsidiary, USS has developed a solution which is anticipated to enhance the return profile of the Default Lifestyle Option with no increase in cost to members or to their employers, it said.

“We have always been clear that any DC investments must be within stringent cost boundaries that demonstrate value-for-money to our members and employers,” Galvin said, adding that this change is being done at no additional cost to members and “in line with our overall investment philosophy.”

A UK government consultation in February 2019 was unveiled, aimed at increasing workplace DC schemes’ investment in so-called illiquid assets.

Six months later UK asset managers proposed a new fund structure aimed at local authority pension funds and DC schemes to support investors looking to access illiquid assets.

The Investment Association (IA), the industry trade body, presented its plans last summer for a new fund structure specifically designed to invest in illiquid asset classes.

The fund said its move demonstrates that organisations with the scale and capabilities of USS can provide access for members to these investments at a reasonable cost.