TPR’s new report on private-market investment shows that large DC schemes and master trusts are investing more in private markets, mostly through diversified funds with exposure to private credit, infrastructure, property and private equity. Trustees told TPR that they consider UK private-market assets where these meet return, risk, diversification, cashflow and liquidity needs.
However, TPR argues that the supply of suitable UK assets doesn’t match the demands that the Mansion House Accord creates. It identifies the following “barriers and enablers”:
- Knowledge gaps
- Tension between fiduciary duty and targets for private market investment
- Time lag on investments
- Constraints in current regulation
- The impact of guided retirement on investment portfolios
- Market uncertainty
- Fee structures and transparency
- Limited access to venture capital
- Inconsistencies in industry reporting
- Lack of availability of an investible pipeline of assets
Action for trustees
- Consider future development of scheme
- Improve trustee knowledge and understanding
- Consider bandwidth – time and opportunity
- Strengthen investment risk management controls
- Review adviser support
- Engage with industry
- Explore the range of investment implementation opportunities
TPR says: “We have shared our detailed findings with government to help them to better understand the market and a range of actions that could be taken to help facilitate a suitable supply of investible assets for pension providers, as outlined under the Mansion House Accord.”
Despite these widely recognised issues, HMT is moving ahead with Mansion House at the moment. This somewhat bullish approach is typical of a lot of current pensions policy, which leads me to conclude that the treasury is both sanguine that the market will iron issues out over time, and happy that the final outcome will roughly reflect its aims.
Providers on their own can’t create a credible pipeline of assets or make a poor investment proposition suitable by improving governance. If government wants pension capital to support UK productive finance, it needs to help develop a pipeline of investible opportunities of sufficient scale, with credible cashflows, appropriate structures, clear reporting, and terms that work for long-term pension investors.
TPR is clear that the Mansion House Accord will only support better member outcomes if there is enough quality supply. If schemes are compelled to allocate capital before suitable opportunities exist this policy could actually generate weaker value for members.
Pensions Goth
Leave a Reply