Defined contribution (DC) schemes are “really restricted” by the lack of choice in property fund investments, with a requirement for daily dealings particularly limiting options, Aegon Asset Management indirect property fund manager, Tony Yu has said.

Speaking at the Pensions and Lifetime Savings Association (PLSA) Investment Conference 2021, Yu stated that property allocations from DC schemes are "undeniable low", explaining that DC funds looking to invest would need property funds that are daily priced and daily dealt.

He clarified that whilst this is not a regulatory requirement, it is a “necessary function of the current investment infrastructure for DC schemes”.

“And there are consequences of that daily dealing requirement, one of them is the potentially higher risk of gating, because of that mismatch between fund liquidity and bricks and mortar liquidity,” he stated.

“Now that’s less of a risk for institutional property funds because flows tend to be broadly stable, especially when compared to property funds designed for retail investors.”

However, he emphasised that this requirement can also "significantly limit" the property investment options available to DC schemes, highlighting that of the 27 funds in the MSCI Balanced Property Funds index, only 5 are considered ‘DC friendly’.

He continued: “The reason they’re DC friendly is that they’re the only institutional property funds which are daily dealt and can sit on their investment platforms.

"Ultimately that daily dealing requirement means that there are fewer funds and less choice for DC schemes. So some of the very high quality managers and property portfolios which are open to defined benefit (DB) are not open to DC schemes.

"The conclusion we’ve come to from all of this, is DC schemes are really restricted by the lack of investment choice open to them."

“That lack of choice is made evens starker if you look at the performance of those DC funds,” he added, pointing out that these funds generally have a weaker performance compared to other property funds.

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