Retirement plans should put more effort into evaluating private market opportunities as the prevalence of public market assets is declining in portfolios, delegates heard at the annual Pensions and Lifetime Savings Association investment conference held in Edinburgh.
Discussing how best to unearth returns, retirement plan executives agreed that in the future,pension funds will draw a bigger part of their investment returns from asset classes such as private equity and infrastructure.
"We watch public markets change shape" as the number of private companies have increased to 4 million from 1 million in the U.K.,said Michelle Ostermann, managing director for investments at the £30 billion ($39 billion) RPMI Railpen, London, during a panel discussion Wednesday. "Public markets are waning."
Denise Le Gal, chairman of the £30 billion Brunel Pension Partnership, Bristol, England, added: "We are seeing smart money migrate into private markets."
But executives agreed that investing in private markets could pose risks to asset owners, although running allocations in-house means "you have a control," said Ms. Ostermann. Railpen runs its private markets allocation in-house. The size of the portfolio was not disclosed.
"If you can't access that illiquidity premium, it is not worth it," added Nico Aspinall, CIO of the People's Pension, a £9.7 billion defined contribution multiemployer plan in West Sussex, England, sponsored by B&CE. Mr. Aspinall questioned the value of investing via external managers, noting that retirement plans should execute due diligence and challenge managers about the returns they are getting.
Speakers also agreed that scale can help institutional investors to access private markets. Railpen, for example, has built its own infrastructure to invest in private markets and collaborates with smaller plans through joint ventures, Ms. Ostermann said.
"Scale enables to be a price maker in the market," Mr. Aspinall said, adding that the People's Pension moved away from a fund-of-funds approach. "We have moved to a custody model that allows to hold companies directly through a GP or LP structure," he said. Mr. Aspinall said that his plan has achieved scale to invest in private markets in a cheaper way.
