PLSA publishes case studies on pension investment in illiquid assets

The Pensions and Lifetime Savings Association (PLSA) has published a series of case studies showing how different types of pension schemes are investing in illiquid assets.

The association set out the case studies to help provide information for pension managers, trustees and policymakers on how pension schemes invest in illiquids and on the issues that should be considered when making these commitments.

Its Pension Scheme Investment in Illiquid Assets report featured case studies from 10 public and private sector pension schemes, including defined contribution (DC), defined benefit (DB), Local Government Pension Scheme funds and DC master trusts.

Schemes featured in the report felt that including illiquids in their portfolios brought several benefits, such as diversification, inflation protection, better returns in private credit and the opportunity to invest locally.

However, the report emphasised that these benefits were balanced against illiquid asset investment-specific risk, including assets being more difficult to divest than expected, the need for different governance arrangements, uncertainty of cashflows, heightened geo-political and regulatory risk, higher than expected correlations to traditional asset classes in times of stress, and cost.

The case studies showed that, through illiquid and private markets investments, schemes had provided funding to a range of projects that have brought social benefits to local communities, the PLSA stated.

“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,” commented PLSA director of policy & advocacy, Nigel Peaple.

“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.

“Over the last six months the PLSA has highlighted to government several ways in which it can further encourage pension fund investment in UK growth assets: Support for a pipeline of suitable assets, the right fiscal and regulatory regime for DB and DC saving, and increasing the level of workplace pension contributions.”

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