More than £250bn of defined contribution (DC) pension scheme assets could be potentially used for illiquid investment by 2030, with over £100bn specifically for infrastructure investment, analysis by Hymans Robertson has revealed.

Hymans’ Illiquid Investment Embracing the Opportunities paper suggested that both the pandemic and the government’s levelling up agenda had reiterated the role of resilient supply chains and the need for material investment in infrastructure.

The paper examined new insights for the DC pension market and, in particular, what opportunities within the illiquid sphere should be considered to improve outcome members at different stages of their journey.

Hymans also found that a ‘cautious’ return expectation from infrastructure was in the range 4-8 per cent per annum after fees, and that infrastructure had the potential to improve retirement outcomes for DC savers by “up to 20 per cent”.

The report concluded with Hymans recommended take-aways, which included an increase in training on illiquid investment, more focus on increasing engagement with providers and advisers, assessment of illiquid investment opportunities in schemes’ investment strategy reviews, and more effective communication.

Hymans Robertson head of DC investment, Callum Stewart, commented: “As governments around the world begin to recognise the importance of a more balanced and sustainable economy, the value of a high-quality infrastructure has never been clearer. Our research finds that there is potential for assets of more £100bn to be used within this area over the next decade, reflecting growth in the size of the DC scheme space.

“There are opportunities not just to enhance retirement outcomes for DC savers, but also to contribute to the development of a more sustainable world. There is now a real belief that such development can, in tandem, lead to the meeting of climate change goals, as the UK strives to embrace net zero.

“Given this potential for investment, we believe that DC savers can afford to take on more risk through illiquid assets. For members at the early stage of their saving journey, risk can be rewarded over the long-term, with a clear opportunity to enhance returns - in some cases by as much as 20 per cent. Any long-term capital commitment often associated with investing in illiquid assets should not be an immediate concern for DC schemes given savers’ very long time horizons.

“Infrastructure investing means investing for the future. Generating a positive impact on the world by investing in tangible infrastructure projects also provides opportunities to engage DC savers. Schemes have a moral duty to ensure their members money is being used, not just to generate good returns, but to do good in the world.”

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