Pension scheme professionals are "split" on the primary benefit of private assets, with the majority expecting private equity distributions to increase over the next three years, an Ortec Finance survey has found.

The survey showed schemes were divided between illiquidity premium (46 per cent), diversification (37 per cent), or inflation protection (17 per cent) as the primary benefit of private assets, while almost three in four (74 per cent) believed distributions for private equity would increase over the next three years.

Of the 74 per cent who expected these to be higher over the next three years, nearly half (46 per cent) said they would be much higher, with 28 per cent saying they would be slightly higher.

Just 8 per cent expected them to be lower, and 18 per cent forecast they would remain unchanged, suggesting that schemes were hoping to realise the return benefits of their private asset investments.

According to the survey, almost nine in 10 (89 per cent) said an increase in distributions would affect their pacing strategy.

Of these, around a third (31 per cent) said their views of distributions will have a considerable impact, with 58 per cent saying it will have a slight impact.

Just over one in ten (11 per cent) said it would not impact their pacing strategy.

Despite the benefits, the pension executives surveyed had different optimal exposure levels.

Over half (52 per cent) deemed a maximum allocation to private assets to be between 20 per cent and 30 per cent reasonable for the fund they manage.

For over a third (36 per cent) this was between 30 per cent and 40 per cent; for over a 10th (12 per cent) this was as much as 40 per cent and 50 per cent.

Just 8 per cent said their scheme’s maximum allocation to private assets was between 10 per cent and 20 per cent.

Ortec Finance managing director of global pension risk, Marnix Engels, commented on the findings: “We see with plans that are navigating their private equity distributions, and commitments are representative of the balancing act between liquidity and the varying pros of private asset classes.

"The survey points towards a growing belief that distributions for private equity are expected to increase in the future, which is a positive expectation showing that plans are about to reap the benefits from illiquidity premiums.

“A majority of the funds in the global survey allocate at least a fifth of their portfolio into private assets, so we can assume that private assets are firmly established on the pension plan investment agenda given their support in pension returns, diversification, and inflation hedging.

"To balance the costs of these three benefits, funds can model their excess liquidity constraints against several economic scenarios to ensure the benefits of private assets don’t jeopardise the overall flexibility of the fund.”

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