U.K. pension and other retirement plans are seeing many benefits from illiquid and private market investments, according to 10 case studies released Nov. 20 by the Pensions and Lifetime Savings Association.
Public- and private-sector funds, including local government pension schemes, defined benefit and defined contribution funds, and defined contribution master trusts, reported that investments in illiquid assets such as commercial property, infrastructure, housing and private markets offer financial returns as well as diversification and inflation protection. Other benefits include being able to invest locally and getting better returns in private credit without going through intermediaries.
The downside of illiquid investments, the case studies showed, include difficulty divesting, different governance arrangements, uncertainty of cash flows, heightened geopolitical and regulatory risk, higher correlations to traditional asset classes in times of stress, and cost, the Pension Scheme Investment in Illiquid Assets report said.
Examples in the case studies include ports, toll roads, affordable housing developments, offshore wind farms, factories and late-stage startup companies. Local benefits highlighted include debt finance for a help-to-own program for West Midlands residents, clean-energy projects in Wales, and a "Smart Campus" site in Somerset chosen by Tata Group for an electric car battery gigafactory.
The case studies also "provide a blueprint to schemes that are less advanced on their journey to investing in less liquid and private assets," said Nigel Peaple, director of policy and advocacy for PLSA, in a news release about the case studies report. U.K. pension funds are already investing in a wide range of illiquid assets and are willing to explore doing more to meet participants' needs, Peaple said.