Facilitating access to illiquids for DC schemes and Master Trusts

Greater investment in illiquid, or less liquid, assets – assets which cannot be easily or quickly sold or exchanged for cash – is an area of increasing focus for UK pension schemes.

Supported by regulatory guidance, there is a growing recognition within the UK Pensions industry that accessing private market assets within DC solutions could bring a number of tangible benefits for members, while also benefitting wider society via investment in areas such as sustainable infrastructure, affordable housing projects and alternative energy production.

At the same time, pension scheme trustees are coming under increasing scrutiny to ensure they are delivering value for members. Tapping into private market assets, which are typically less liquid, is one way that trustees can diversify their schemes’ portfolios and potentially deliver enhanced returns via the ‘illiquidity premium’.

While many Defined Benefit (DB) schemes already include allocations to less liquid asset classes such as private equity, private credit, real estate and infrastructure, this has less often been the case within the Defined Contribution (DC) market. Many DC schemes face operational challenges associated with insufficient scale and pricing, and have historically focused on keeping costs low by investing in liquid assets that can be daily priced and traded in order to meet the perceived needs of their members.