Institutional Asset Manager Newsletter 02.02.24

Illiquid assets set to star

The UK’s defined contribution (DC) pension market is worth approximately GBP 800 billion yet relatively little of this vast pot is allocated to illiquid assts.
The sector has long been hamstrung by – often spurious – requirements for daily pricing alongside the very real issues of paying the unaffordable fees associated with such investments.
Yet these barriers mean millions of individuals who rely on these DC schemes to fund their retirement may be missing out on the long term returns such asset classes provide.
And it has recently come to the attention of the UK government that it is denied access to billions of pounds in private capital that would prove handy in meeting its net zero ambitions and making good on levelling up promises.
No surprise then that we are seeing initiatives to help DC plans access illiquid assets including allowing trustees to exclude specified performance-based fees the 0.75 per cent charge cap imposed on workplace DC default funds, so long as investments are proven to be in members’ best interests.
The fund management industry is also starting to wake up to the commercial opportunities possibilities of providing illiquid asset funds to the DC market. This week we report that Invesco Real Estate has launched a fund exclusively for DC pension schemes in the UK.
The Invesco Global Direct Property Fund (GDPF) aims to improve DC investment outcomes by investing in direct global real estate, an asset class that Simon Redman, Managing Director, Head of DC and Wealth at Invesco Real Estate, says "has not been fully optimised in DC portfolios".
Given the current direction of travel for DC investment strategies, there will be plenty more fund managers joining field to invest not just in global real estate but the wider private markets, which will hopefully be to the benefit of individual members and the wider economy.
Elsewhere we bring you a report from JTC Group which finds investment trusts are left wanting on responsible investment reporting.
Much like other areas of the financial services industry investment trusts are accused of underserving investors on ESG.
Research covering 375 investment trusts finds "a significant lack of consistency in the adoption of ESG standards" while their reporting is often "short and lacking in detail".
The report rightly notes that substandard reporting runs contrary to the direction of travel from regulators and standards boards that have "expressed the desire for the sustainability disclosures and financial disclosures to be combined within one detailed inclusive disclosure, making it easier for investors and stakeholders to see everything in one place".
Yet JTC also makes a fair point in that sustainability disclosures must adapt to the huge variety of underlying investment types in a way that financial disclosures do not, making it challenging for those who are used to crunching numbers rather than processing data from the esoteric world of ESG.
However, adapt they must or risk losing investors who feel the industry has run out of excuses for failing to support their responsible investment objectives.
Gill Wadsworth, Editor
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