Investment decisions of U.K. multiemployer plans remain constrained by fees, particularly with illiquid investments, according to a U.K. Defined Contribution Investment Forum report.
In the report, "Growing Pains: Master Trusts Beyond Auto-Enrollment," published Wednesday, the money manager-led forum studied portfolios of 18 U.K. multiemployer plans, known as master trusts. It found the master trusts are struggling to access illiquid investments meaningfully because of fees.
While master trusts consider the investment case for illiquid assets to be strong, most master trusts are yet to invest in them, the report said. In the next three years, 12 providers hope to allocate less than 5% of their assets into illiquids, and five other providers said they will not invest in illiquids at all.
Eight providers of master trusts spend 25% to 50% of total fee budgets on investments, while seven providers spend 10% to 25% on investment fees, according to the report. Three of the providers spend over 50%. Still, seven providers said they had an appetite to increase their investment budgets as a share of overall investment and administration budgets, which remains capped in the U.K. at 0.75% of funds under management and administration. Over half of the plan providers that intend to increase their investment budgets currently spend 25% to 50% of total fee budgets on investments.
DCIF recommended in the report that the U.K. government doesn't seek to reduce the fee cap below its current level or seek to include transaction costs within the cap, noting that will hinder competition and constrain investments.
"Some of the challenges that (multiemployer plans) raise are important considerations for the wider industry. For instance, as investment managers, we will take into consideration their comments around investment design for DC. As a group of investment managers, we are committed to looking after the needs of master trusts and end investors to the very best of our abilities," Hilary Inglis, DCIF chairwoman, said in a news release accompanying the report.