Nick Groom
Head of UK DC Strategy & Sales
Natixis Investment Managers
We believe that private market investments, including those that charge performance fees, should form part of DC schemes. There are many others in the industry that feel the same, including the government. Many hurdles have already been overcome, but one of the biggest remaining ones is the concern that such allocations may lead to inequity between members of UK DC schemes.
This paper, in our opinion, goes a long way to removing that barrier. Our decision to look at the potential inequity between members of UK DC pension schemes for members of default arrangements was predicated on the understanding that most other barriers had now been overcome and there was a collective shift to increase their allocation to private markets including ones that have performance fees.
If you are going to do this: do it well
The past 5 years or so in the adoption of private markets have been a bit like trying to solve the member engagement conundrum; one aspect of a members’ journey that is perennial and enduring in nature, but never properly solved.
However, following a period of education, understanding and myth busting, plus the ambition from the government, regulator and Mansion House initiatives with the incentive of inward UK investment, we now can see a much clearer way forward.
Performance fees were perhaps the last barrier to overcome, and we set about doing some quantitative analysis, combined with qualitative interviews with a whole array of industry actors, home and abroad, to get their views on performance fees.
Our analysis assumes that the reader has bought into the idea that an allocation to private markets is worthwhile because of the diversification benefits and the potential positive contribution to net returns and thus the only reason not to do so is the result of worries about inequity. Thus, we set about trying to determine whether or not the inequity that does exist was meaningful enough to warrant not allocating to investments with performance fees. In short is it rational for fiduciaries to invest with performance fees for the good of all of the beneficiaries?
Some inequity will inevitably exist. The way these funds work means it is impossible to eliminate them completely, but the impacts can be mitigated. We believe in alignment of interest and that if you want to access the best quality managers and get the best returns, you may well have to pay some level of performance fees.
Your responsibility as fiduciaries and providers is to decide on whether the scale of any inequity outweighs the potential upsides for the broader membership.
We hope you enjoy the report, and more importantly hope that it gives you the necessary information to make the right call for the members that you serve.
Request to read 'Unpacking perceived inequity'
Included in the white paper:
- Discover how incorporating private markets into UK DC pensions can revolutionize returns and member outcomes.
- Explore the evolving landscape of performance fees and their role in driving investment success while ensuring fairness among scheme members.
- Understand the methods for quantifying potential member inequity and strategies for achieving equitable treatment across diverse investment cohorts.
- Dive into the transformative potential of private markets in driving both financial gains and social progress in pension portfolios.
Ben van den Tol
CBRE Investment Management
Ben van den Tol is the Director of Client Solutions, where he leads client solutions for the UK Defined Contribution (DC) market. His role involves developing bespoke solutions that leverage the full range of CBRE IM strategies across private and listed real estate and infrastructure. Before joining CBRE IM, Ben worked at Carne Group as the Business Development Director and was the lead for the UK Defined Contribution channel. Prior to that, he spent nearly eight years as the Head of Institutional Business & Consultant Relationships at Investors Mutual in Sydney, Australia. Ben holds the CFA charter and earned his Bachelor’s Degree in Economics and Psychology from the Australian National University.
David Bird
Consultant and qualitative contributor
David is a consultant specialising in Defined Contribution pensions. He has over 40 years experience of working in pensions including over 20 years at WTW. Notably David was the key builder of WTWs LifeSight master trust. He is one of the UK's most knowledgeable experts on DC master trusts. He is currently working as a self-employed consultant for a range of clients on DC proposition, post- retirement solutions and investment issues.
Jochem Tielkemeijer
Senior director, NIM Solutions and quantitative contributor
Jochem Tielkemeijer is responsible for leading portfolio analysis, advisory and consultancy services for clients in the UK, The Netherlands, and the Nordics. Jochem has over 15 years of experience in the investment management industry, and more than 6 years in his current role. Previously he was at Fisher Investments Europe for over 5 years where managed a team of portfolio advisers and facilitating the company’s expansion into The Netherlands. In this position, he was responsible for client servicing, sales and often a key-note speaker at client events. Prior to this, he worked as an Investment Adviser at Finsens Investment Consultancy, an investment boutique in Amsterdam. He has a master’s degree in business economics from the University of Amsterdam and is a CFA charter-holder.
Additional quantitative work contributed by: Elpida Louka, Quant, portfolio construction, NIM Solutions and Piotr Podgorny, Quant, portfolio construction NIM Solutions.
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