Managing illiquid assets is a key concern for pension schemes nearing their endgame, whether through buyout or run-on, according to Aon.
Aon says many UK defined benefit (DB) pension schemes have become overly reliant on illiquid assets in recent years which can be a difficulty when schemes attempt to transition to an insurance-based solution.
Aon investment partner Craig Watson says: “Schemes have entered a new area of complexity as they try to manage their exit from allocations to illiquid assets which now look too large or lack the flexibility they require.
“In most cases, this has meant that schemes have had to work with a specialist adviser that can consider the full suite of solutions available in order to negotiate the best possible outcome for the scheme. Aon has helped clients to sell more than £2.25 billion of illiquid assets across over 100 fund holdings during the last five years.
“Balancing commercial objectives and developing a bespoke ‘go to market’ strategy with your trusted adviser is key. The process of selling these investments can be complex with post-sale risk for the seller, so Aon has helped clients consider insurance solutions against this risk.”
Watson adds: “We believe platforms may offer value in certain cases where it helps to reach more potential buyers, but they are not tested compared to the traditional approach. For any scheme, there are key questions to consider which need careful thought: should you try to sell all your illiquid assets together as a package deal, or are you better isolating the assets and approaching niche buyers in each individual asset class?
“We have favoured working with independent third-party brokers, selected after extensive research, and utilising our experience to develop bespoke approaches. These brokers have a deep, global investor base to reach out to and strong buyer networks.
“Brokers know serious buyers that are likely to transact and they understand the individual buy side governance frameworks and deal structuring approach. They can also operate at pace if required – although that may lead to a trade-off on price. We expect substantial deal flow from DB schemes to persist for the next few years.”