More than half of the commercial master trusts are now making a move toward more illiquid investments according to data from Hymans Robertson.
It says this shift — from cost to value — could help boost member returns, with historical data showing an allocation to illiquid would have boosted returns by 1 to 2 per ent a year over the past decade, assuming this is part of a diversified portfolio.
These figures are contained within Hymans Roberston’s latest Master Trust Default Fund review.
Hymans Roberston head of DC investment Callum Stewart says: “Our analysis indicates that member outcomes, which have largely reverted to pre-pandemic levels, are now under pressure from other factors, such as the war in Ukraine, the cost-of-living crisis and recent turmoil in bond markets.
“There’s a compelling case for bringing illiquid alternatives, such as infrastructure and private equity, into DC default investment strategies, as these are expected to drive significant improvements in member outcomes through greater returns and improved diversification.
“To unlock this potential, we need to stop the race to the bottom on charges and ensure the positive case for delivering better value is heard.”
These views were backed up by the newly-appointed CEO of The Pensions Regulator, Nausicaa Delfas, who said in a recent speech “We want industry to change its mindset. From prioritising low costs to putting value first. And by doing so to drive innovation in the interests of savers.”
Stewart adds: “Providers should also assess investment platform capabilities given the integral role these perform in facilitating access to illiquid investments. Based on our analysis, the current low charge environment is limiting the potential to materially improve outcomes. For example, a 10 basis points increase in charges could support a 10 per cent allocation to illiquid investments and at least a 10 per cent improvement in retirement outcomes for younger savers. Value and outcomes should drive decisions, not cost.”