Investment - Articles - Investing in illiquid assets in DC schemes

Sonia Kataora, Partner at Barnett Waddingham, said: “DWP has already been working to encourage the use of more illiquid assets in DC schemes – and making the point that this will support an economic recovery.

 “Removing some of the impediments to investing in illiquid assets in DC schemes is a good thing for DC members, as it will allow access to a wider source of returns, often uncorrelated to traditional return sources.

 “DWP has recently consulted on changes to the charge cap requirements in order to ease difficulties with performance fees, which are commonly used by illiquid funds and which is one obstacle. Today’s announcement shows intent to alleviate any practical concerns around such issues.

 “Some DC schemes do already successfully invest in less liquid assets – for example, by pooling alongside more liquid investments and planning ahead for potential gating issues. And of course property has been used fairly commonly as an investment by DC schemes for many years.

 “DB schemes do not face the same practical impediments to investing in illiquid assets as DC, and very few do actually have an allocation to, for example, infrastructure. So it seems unlikely that making these asset classes more available to DC will suddenly open up the levels of investment needed to boost our post-COVID economic recovery although this is a longer term play on the asset class given the longer investment horizon of DC schemes.”

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