The Pensions Policy Institute has published a report on the relevance of alternative assets in DC scheme investment in light of recent economic uncertainty and new opportunities, including the government’s recent reforms to facilitate greater investment in illiquid assets.
Currently, the allocation to alternative investments is “relatively low” but there is expected to be “significant progress” in coming years moving beyond the previously dominant passive equity and bond split. The report notes that DC schemes are becoming increasingly focused on greater reporting and transparency, enhancing investment strategies, incorporating sustainability objectives and demonstrating value for money. Consequently, greater engagement with alternative assets could result in increased portfolio diversification and an improved level of risk mitigation, particularly during times of economic uncertainty and market downturn.
The report also attributes the growing knowledge and understanding of alternative assets in DC schemes to the possible future progress. However, the PPI recognise that DC charging structures and cost considerations continue to act as barriers to alternative investments, especially for small schemes, and calls for additional guidance from regulators to support their transition.
Currently, the allocation to alternative investments is “relatively low” but there is expected to be “significant progress” in coming years moving beyond the previously dominant passive equity and bond split. The report notes that DC schemes are becoming increasingly focused on greater reporting and transparency, enhancing investment strategies, incorporating sustainability objectives and demonstrating value for money. Consequently, greater engagement with alternative assets could result in increased portfolio diversification and an improved level of risk mitigation, particularly during times of economic uncertainty and market downturn.
The report also attributes the growing knowledge and understanding of alternative assets in DC schemes to the possible future progress. However, the PPI recognise that DC charging structures and cost considerations continue to act as barriers to alternative investments, especially for small schemes, and calls for additional guidance from regulators to support their transition.