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AIC believes the benefits of illiquid assets should be available to all pension investors

15 April 2019

Response to government consultation exploring investment in illiquid assets by pension schemes.

The Association of Investment Companies (AIC) has responded to the Department for Work & Pensions’ consultation Investment Innovation and Future Consolidation which explores how best to facilitate investment in illiquid assets by occupational defined contribution (DC) pension schemes. The AIC’s full response is available here.

Ian Sayers, Chief Executive of the Association of Investment Companies, said: “It’s good that the government is exploring how occupational defined contribution pension schemes can invest more in illiquid assets. Assets like private equity, infrastructure, property and debt can play a powerful role in investors’ portfolios with the potential to generate higher returns and income. These benefits should be available to those saving for their retirement through pension schemes, not just those ‘in the know’.

“However, we don’t agree with the consultation’s conclusion that ‘a wide range of illiquid assets will not be available to smaller DC occupational schemes’. Any DC scheme can gain ready exposure to illiquid assets with investment companies. As listed companies, investment companies trade throughout the day offering liquidity and their closed-ended structure makes them ideal for holding illiquid assets. The consultation points out that there are 1,080 defined contribution schemes with between 12 and 999 members and that these schemes have average assets of less than £3 million. These schemes could be a perfect fit to gain exposure to illiquid assets through investment companies.

“Investors in smaller schemes should not have to miss out on the opportunities which illiquid assets present due to scale when a solution exists.

“The consultation also asks whether the charge cap for DC schemes used for automatic enrolment, currently 0.75%, is a barrier to accessing funds which charge a performance fee. Managing a portfolio of illiquid assets could have higher costs than those of managing quoted assets, so we believe the structure of the cap should be reviewed. A more flexible approach would help facilitate greater investment by occupational DC schemes in illiquid assets and enable more investors to access the potential benefits.”  

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Notes

  1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 359 members and the industry has total assets of approximately £189 billion.
  2. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance.  The value of investment company shares, and the income from them, can fall as well as rise.  You may not get back the full amount invested and, in some cases, nothing at all.
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