Defined contribution pension schemes have expressed enthusiasm towards investing in private market assets, but are facing barriers including capability and knowledge gaps, fees and a lack of suitable investment opportunities, according to a report by The Pensions Regulator.
Workplace pensions hold around £2 trillion of assets, and the government is pushing for greater investment in private assets through initiatives such as the Mansion House Accord.
TPR’s research highlighted the practical challenges preventing schemes from investing capital at pace and scale while continuing to deliver good outcomes for members.
Based on interviews with more than 40 stakeholders from across the pensions and investment industry, the research found schemes are interested in private market investments, including UK infrastructure, where they align with their investment objectives and fiduciary duties.
The report also encouraged trustees to work with advisers and assess whether they have the scale, expertise and governance capabilities needed to invest, starting with member outcomes, scheme strategy and risk profile, and to plan ahead for how their scheme may change over the next five to ten years.
TPR has also pledged to use its regulatory approach to challenge trustees on their investment strategy and governance capabilities, through supervisory engagement, while also supporting industry initiatives that help remove barriers and improve access to suitable investment opportunities.
Pensions minister Torsten Bell says: “Pensions are a huge source of potential investment in this country, and we want schemes to be able to back UK growth as well as deliver good outcomes for their members.
“This research moves us closer to understanding the barriers holding schemes back, helping us work with industry to unlock investment that supports a stronger economy and better retirements for savers.”
Findings from the report included that pension schemes are interested in investing in private market assets where it is in their members’ interests. Larger schemes with greater scale, governance capability and better access to specialist investment expertise were also generally better placed to invest in private markets.
Additionally, most large DC schemes and DC master trusts have already invested or are intending to invest, and new investment vehicles, including Long-Term Asset Funds, are creating practical routes into private market investment for some schemes.
Longstanding barriers to private markets include policy and regulatory uncertainty, capability and knowledge gaps, opaque fee structures, limited transparency, restrictive market structures and limited availability of suitable investable opportunities.