Defined contribution (DC) pension schemes looking to invest in private markets are being “hampered” by having to operate on a daily dealing basis, The Pensions Regulator (TPR) lead investment consultant, Chris Moore, has stated.

Speaking at the Pensions and Lifetime Savings Association (PLSA) Investment Conference 2024, Moore noted that DC schemes tended to have a lower allocation to illiquid assets than defined benefit (DB) schemes as they had tended to be much smaller in scale.

However, with more money being brought into DC pensions, there has been a push for greater investment from DC schemes in private markets and illiquids.

“You could question for DC: Why do we have daily dealing? These are things people are going to invest in for 40 or 50 years, do you need to be able to buy and sell every day? In some ways we are hampered as an industry by having this operational requirement to deal every day in these assets, but I think it’s another reason why DC has so much less in these assets,” Moore said.

“A lot of the linked funds that I see are linked to investment managers’ daily dealing funds. To me, the industry has been built on this basis. Not everything needs to be on a daily dealing basis, is there a different way to do that? There are obstacles that need to be overcome.”

For pension trustees considering an increased allocation to illiquid assets, Moore highlighted the importance of suitable advice and advisers.

He noted that these were long-term, complicated assets, which can be difficult to get out of, so the need for advice was “clearly key”.

“One of the things trustees need to do is look at their current advisers and say ‘are they actually equipped to advise on some of these different asset classes’? It may be that they want to call on specialist advice,” Moore added.

“In terms of looking at how a particular strategy can add value to your current default mix is key, and understanding all the idiosyncratic elements around that, which do tend to come alongside assets in this area.”

Moore urged those considering greater illiquid allocations to talk to their scheme employer: “If you are looking to invest in these assets, but the employer has thought about moving the scheme into a master trust, if you are a single-employer scheme at the time, then you really need to think about that.

“These are long-term, complicated assets, it can be difficult to get out of them, and they can limit the opportunity for the scheme to change in terms of structure in the future.”

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