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Work still needed on 'big debate' over illiquid DC investments, says BlackRock

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BlackRock has said it will consider how to grant defined contribution (DC) funds in the UK access to illiquid assets as the “big debate” around investments in infrastructure and property continues.

Asked how DC funds in the UK could gain access to such asset classes, Paul Bucksey, the asset manager’s head of UK DC, said the firm would “continue to mull that one over” and stressed the benefits of accessing the associated illiquidity premium.

“There is a big debate about illiquids, and property is the perennial one,” he said.

“We have a DC property fund that really is a blend of four managers, just so we can make sure they are not all going to be full and unable to take money or pay money out.”

Bucksey added that BlackRock was a “great fan in our institutional business of trying to invest in UK plc, but in DC it is actually pretty tough”.

“We all might be quite happy to earmark some of our DC savings to an infrastructure project that is going to pay us back in 2025, but when you are dealing with hundreds of thousands of individuals, and the plans change, you might need the money back much quicker than that,” he said.

“It’s actually quite difficult to do. It’s just much harder to put it into some kind of unitised structure where people can get in or out [noting the requirement for a blended fund structure to allow for an element of liquidity].”

Bucksey was also concerned about the 0.75% charge cap on DC default funds, especially over the opposition Labour Party’s pledge to lower it further to 0.5%.

“There’s probably a point in all of this where some stability, from a political point of view, wouldn’t go amiss,” he said. “There’s been a lot of change brought in – and there’s fatigue in the market.”

He said the majority of the passively managed BlackRock funds aimed at institutionals charged less than 50 basis points – “but if there are clients using a blend, or using some active, then clearly they would have to review that”.

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