The PLSA’s illiquid investment drive


21 Nov 2023

Report showcases the benefits and risks of investing in alternative assets. Andrew Holt reports.

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Report showcases the benefits and risks of investing in alternative assets. Andrew Holt reports.

The Pensions and Lifetime Savings Association (PLSA) has published a number of case studies to highlight how pension schemes can invest in illiquid assets.

The Pension Scheme Investment in Illiquid Assets report sets out examples from 10 schemes including local government pension schemes, defined benefit (DB), defined contribution and master trusts. The aim is to share how pension funds are investing in such assets along with the issues to be considered. 

Schemes featured said including illiquid assets in their portfolios had a number of benefits, including diversification, inflation protection, better returns in private credit through removing intermediaries and the opportunity to invest locally. 

The report also highlighted the risks that illiquids are more difficult to divest than expected, the need for different governance arrangements, uncertainty of cashflows, heightened geopolitical and regulatory risk, higher than expected correlations to traditional asset classes in times of stress and cost.

The report also shows that through illiquid and private markets investments, pension schemes have funded a range of projects which have brought societal benefits to the local communities.

These include debt finance for a help-to-own scheme for local residents in the West Midlands by the West Midlands Pension Fund, clean energy projects in Wales by the Clwyd Pension Fund and the development of a 600-acre smart campus site in Somerset by the Merseyside Pension Fund, which was subsequently selected by Tata for the location of its £4bn electric car battery gigafactory. 

The PLSA has already recommended six policy approaches to boost greater investment in growth assets.

These include raising minimum workplace pension contributions, enabling organisations like the British Business Bank to bring forward a pipeline of suitable investment assets at low cost and providing fiscal incentives to increase the attractiveness of UK assets.

Other measures call for regulatory changes to allow open DB schemes more flexibility to pursue higher investment returns, and reforms to ensure employers and trustees can place more focus on performance rather than only cost when they are selecting or designing a workplace pension.

Nigel Peaple, director policy and advocacy at the PLSA, said: “The recent debate surrounding the Mansion House reforms has not always reflected the wide range of investing already underway in illiquid assets by many pension schemes, nor the willingness of the sector to explore doing more provided such investments meet the needs of savers and scheme members. 

“These case studies outline the real-world benefits savers’ pension contributions are providing at a regional and national level and also provide a blueprint to schemes that are less advanced on their journey to investing in less liquid and private assets.”


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