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Pension trustees voice concern on push into illiquid assets

Pension trustees refrain from investing in so-called illiquid assets that could increase retirement returns – due to fears that members may be hurt by non-transparent valuations or see trapped cash.

The government is pushing the trustees of some of the largest pension plans in the country to invest more widely in assets such as infrastructure plans, which are often perceived as illiquid because they cannot be traded as easily as stocks and shares.

Many defined fund pension funds are dominated by default fund strategies that heavily weight for listed stocks and fixed income assets, with some use of cash and other types of assets.

Default funds strive to provide a good investment solution for DC members who do not choose their own investments: They typically invest in growth assets when the members are younger, with a gradual shift toward lower-risk assets as they mature.

The government believes that broader investment by DC funds in illiquid assets, including real estate, infrastructure or private market holdings such as private investment, could help the UK “strengthen better” as well as provide better returns.

Members will receive their money in long-term investments that are less volatile than stock market plans and provide more stable income streams.

However, moving to an illiquid portfolio will have an impact on members in several ways that need to be addressed, experts say.

LCP, an actuarial company, said the main concern of the trustees is to ensure that members get a fair value for their funds, as assets may not be priced on a daily basis, as they are not liquid.

Currently, most, if not all, of the assets are invested in consolidated funds at a daily price, which are very liquid, meaning the member gets accurate quotes from his fund if he wants to transfer his fund.

“Right now we live in a daily trading world so members have a daily valuation and they can access their coffers at any particular point,” said Laura Myers, a partner at LCP.

“If we’re never going liquid, where we have monthly or quarterly valuations, which basically means you have monthly priced assets on members.” Myers said it could create “winners and losers” if an investor transferred his fund, just before the revaluation of an illiquid asset, which led to a large boost, or lowering, of the fund’s values.

“Trustees should feel comfortable that they are invested in liquidity for the benefit of members in general, but there is a broader point here about fairness,” she said.

“Our view is that trustees need explicit approval from the Ministry of Labor and Pensions and the Supervisor of Pensions because, for example, monthly pricing and not daily pricing is acceptable.”

The Lifelong Pension and Savings Association, a professional body for workplace pension plans, has also raised concerns about tying up cash to long-term property savers, in particular Following the Neil Woodford scandalThere 300,000 investors could not transfer their cash for more than a year after the former star manager closed his flagship fund.

“There are questions about making sure investors have the right exits from funds,” said Joe Dabrowski, deputy director of policy at PLSA. “People are now very aware of exit issues.”

The Department of Labor and Pensions is currently examining responses to a recent consultation on proposals to require trustees to overestimate liquid assets.

“Opening up larger options of illiquid assets for investment in a defined contribution plan will help allow plans – and savers – to enjoy more diverse portfolios,” the DWP said.

“We will carefully review all consulting responses, including around valuations, and respond formally in due course. Alongside this, we continue to communicate regularly with industry and other stakeholders, taking into account any feedback we receive.”

Pension trustees voice concern on push into illiquid assets Source link Pension trustees voice concern on push into illiquid assets

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