Default defined contribution (DC) savers need greater access to private market opportunities, according to Scottish Widows head of pension investments, Maria Nazarova-Doyle.

Speaking at the Pensions and Lifetime Savings Association (PLSA) Investment Conference 2021, Nazarova-Doyle asserted that “more and more companies around the world are either going private or staying private for longer”, noting that “20 years ago the average time for an IPO for a US firm was three years, now it is eight years and getting longer”.

She explained that companies are “just not using public markets the way they used to”, which means the capital gained through the companies’ growth was “being harvested by private market investors, while public markets are being increasingly dominated by mature businesses with lower growth prospects”.

Nazarova-Doyle continued: “The investable universe of private markets is ever-expanding, and these markets have been growing exponentially and now represent around 10 per cent of the global investable universe. That’s why we really should not be ignoring them when we design DC investment strategies.”

Pinsent Masons legal director, pensions and long-term savings, Michael Jones, added that it was worth noting that defined benefit (DB) pension schemes had “a lot easier access to private markets” through segregated mandates, while “a significant majority” of DC schemes invest through platforms.

He therefore asserted that “breaking down” this method of investing would be the best way to gain alignment between DB and DC schemes.

LCP head of DC and PLSA Policy Board member, Laura Myers, noted that UK DC investment strategies often started heavily on the equities side for younger scheme members, but argued that, because of their “long-term horizons”, these members were “the perfect investor for thinking about long-term illiquid asset classes”.

She commented: “In my view its essential that DC savers have access to the same tools that DB pensions have. DC members are shouldering these investment risks so we shouldn’t be limiting their universe, we should be pursuing these opportunities and getting stronger returns from things like infrastructure and private equities.”

When it came to the issue of making progress towards opening up the playing field, Partners Group partner and head of portfolio & mandate solutions, Roberto Cagnati, said government pushes to allow access to private markets for DC savers “could be faster”, but noted that Brexit and Covid-19 had been “hindrances”.

Nazarova-Doyle argued that there was a “disconnect between the various regulators and their intentions”, stating that the Department for Work and Pensions was “really excited” about the idea and had been working for years to remove barriers.

Conversely, she noted that the Financial Conduct Authority was “extremely focused on liquidity”, to the extent that the regulator plans to remove the only accepted illiquid investment available to DC members, which is direct property fund.

She concluded: “When we look at who invests in private markets, its sovereign wealth funds, endowments, family offices, DB funds and insurance companies, and who is not invested? It’s me and you in our DC pensions.

“There are many reasons for it but none of those reasons are inherently insurmountable and we should all keep working together on the solutions so that pension investors can access the opportunities afforded by private markets and so that we can help to better align the investment strategies of defaults with the long-term nature of pension investment.”

Share Story: