The expectation that UK pension schemes, particularly defined contribution (DC) pension schemes, can quickly and easily invest in technology and science venture capital is “concerning”, the Association of Consulting Actuaries (ACA) has warned.

In its response to the Treasury’s consultation on the proposed Long-term Investment for Technology and Science (Lifts) initiative, the ACA warned that it will take time for appropriate vehicles with the required liquidity and operational structures to develop, and for governance bodies to assess their quality and suitability.

In addition to this, the ACA raised concerns around the practical challenges that remain around managing the illiquidity associated with private market investments, arguing that the extent of work required across administrators, investment managers, governance bodies, advisers, and other parties to implement a fund is “significant”.

The response also highlighted the events of 2020 as an example of the challenges wrought by less liquid funds, pointing out that many pooled, daily priced property funds suspended trading owing to difficulties in valuing the underlying assets, with a similar trend seen in autumn 2022 when the gilt market crisis triggered liquidity issues in a number of markets.

More broadly, the association clarified that while removal of performance fees from the DC change cap is helpful in removing some cost barriers, it does not mean that fees have gone away.

Furthermore, it stressed that master trusts in particular operate in an environment of “fierce competition” on price, arguing that this could act as a barrier to master trusts welcoming Lifts.

Despite these concerns, the ACA said that it does encourage innovative thinking to ensure improved access to attractive investment opportunities for UK pension schemes, acknowledging that some of the options may make wider access to private markets less challenging.

ACA DC Committee chair, Tess Page, stated: "We acknowledge that the UK may hold attractive opportunities for investment in the technology and science sectors. That said, as with our comments on previous consultations on related issues, we do challenge the implied assumption that UK pension schemes, and DC schemes in particular, will be ideally placed to invest in these opportunities.

"UK pension schemes are global investors. When selecting investments, governance bodies need to be confident that their investment arrangements will meet fiduciary duties and ensure that the best outcomes for pension scheme members can be delivered.

"This means considering the broadest range of asset classes and geographies globally, and taking into account both return potential and risk levels, including liquidity risks, concentration risks, and market risks.

"If Lifts meet scheme objectives and prove to be capable of offering attractive risk-adjusted long term returns net of all costs and charges, when weighed up against alternatives, they will certainly have a place."

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