Aegon is overhauling its largest workplace default to include a greater weighting to private markets and enhance its ESG integration.
The changes will be made to the £12 billion Universal Balanced Collection (UBC) fund, which has more than 700,000 members. This is available through its Aegon Retirement Choices (ARC) platform for its GPP proposition.
The private market allocations will be via three different LTAFs (Long-Term Asset Funds) managed by three different managers, BlackRock, Aegon Asset Management and JP Morgan Asset Management. The allocation to private markets will rise from zero to 15 per cent over a three year period. This is comfortably above the minimum 5 per cent allocation limit set out in the Mansion House Compact, agreed between the government and leading DC pension providers.
Despite these investment changes, UBC’s objective and risk appetite will remain the same. However there will be a modest increase to the fees. The fixed management fee will remain the same, but Aegon said the total fund change is also made of additional expenses which will increase. Overall it said this allocation to private markets is likely to add 4bps to these additional expenses.
Aegon said that these changes should delivering better risk-adjusted returns and value for money, ultimately delivering better outcomes for members. It is predicting a 1 per cent uplift in performance over the longer term.
These investment changes will start in the third quarter of this year, and will complete in 2025, with Aegon adding that it plans to roll this out across its wider workplace offering at a future date.
Aegon’s conditions of its GPP arrangement mean this increase sits within its mandate, and is not a change that requires a communication to all members,
Aegon will partner with three leading fund managers to deliver these changes, the details of which are given below. It says its scale has enabled it to negotiate terms with these managers, and has ensured it has sufficient liquidity controls in place to meet the requirements of a DC solution.
BlackRock will manage an alternative private markets strategy, including private equity, private debt, real estate and infrastructure. It will also manage a fully ESG integrated passive equities and bonds strategy with a year-on-year decarbonisation target, from quarter four 2024.
Aegon Asset Management will manage a new multi asset credit mandate which includes global high yield, asset backed securities and emerging market debt strategies from H2 2024. In addition, it will also manage a private debt and alternative fixed income fund, subject to FCA approval and operational considerations, from early 2025.
Also due in 2025, JP Morgan Asset Management will manage a bespoke strategy, offering exposure to private equity, infrastructure and forestry. This is also subject to FCA approval.
A number of other workplace pensions providers have overhauled their default offerings in recent year, or offered newer versions. This include Standard Life, Fidelity and Legal & General Investment Managers. Typically these changes have been to boost equity holdings during the growth stage and to enhance ESG investments.
Aegon managing director, investment proposition Lorna Blyth says: “We believe our changes will improve the growth potential of the Universal Balanced Collection and future Aegon funds that utilise these enhanced capabilities.
“The changes target robust risk management and diversification, to offer members improved outcomes and value for money.”
“This bold move also aligns with our commitment to reach net-zero greenhouse gas emissions for our full range of default funds by 2050, and to a 50 per cent reduction in emissions by 2030.
“It also significantly supports our desire to invest £500 million in climate solutions by 2026. We expect many of these solutions to come from unlisted equities which aligns with our Mansion House Compact aim to invest at least 5 per cent of our default fund assets in unlisted equities by 2030.”
“On completion of the Universal Balanced Collection changes in 2025, we anticipate that we will have moved over £30 billion of default assets into funds that consider ESG factors.”
