‘We’ve been here before’: IFAs round on gov’t DC illiquid assets plan

It’s not my headline (or my photo), I’ve nicked them from Citywire’s NMA and if you click the link you can read the views of a number of IFAs on the idea of having your pension pot invested in illiquid assets.

One comment  was clearly made before news of Nest’s £250m JV with Octopus and Smart’s £100m seeding of  Nataxis’ MV Dual Credit Fund, hit the news stands.

I cannot see any Workplace Pensions taking the risk, although it would be interesting to see the reaction to mass market, non advised investments going seriously wrong, there is nobody left to blame except the legislators.

I really worry that advisers see “mass market, non advised investments going wrong” as interesting.  This is real money that belongs to real people and if any of these investments go wrong, the results will be really bad for those in these funds.

This is why fiduciaries like the Nest and Smart trustees who sanction these investments and the CIOs, Mark Fawcett and Darren Agomber (respectively) who decide upon them, do so with gravity and due regard to the financial wellbeing of the millions of people for whom these investments can and will make a difference.

IFAs have an important part to play in pensions, they manage the assets of people who have opted out of workplace pensions , either through transfer , through retirement or because they chose another route to accumulate wealth in later life. No one is dismissing their central role in managing the financial affairs of the 10% of the population with the means and foresight to employ a financial adviser.

The mass market matters

But IFAs also have a responsibility toward the 90% of the population which uses “mass-market , non advised investments”.

Firstly, advisers must recognize that workplace pensions are managed with fiduciary care. The chairs of Nest’s and Smart’s trustees are real people, Andy Cheseldine and Otto Thoreson, their boards are made up of real people who exercise their duty of care on behalf of members and are accountable for the member’s experience to their members. They do not report to Government (even though Nest was set up by Government), they report to people like you and me (and I do read their Chair Statements!).

Secondly, the investments open to Smart (with over £1bn under management and Nest with close to £30bn under management), aren’t appropriate for wealth managers. These schemes  haven’t the needs for liquidity required by private investors and their advisers. There are arguments (including arguments on this blog) that now is not the best time to be investing in illiquid markets, but those arguments needed to be balanced against the opportunities presented by managing the risks and taking the opportunities of the peculiar circumstances we find ourselves in.

Master trusts are no longer in start-up mode, People’s Pension now manages £14bn, Nest close to £20bn. They carry the hopes of millions of savers;  advisers need to understand how they work and why they compliment rather than compete with what they do.

Woodford apart

Comparisons with Woodford (of which the Citywire article has many) are unfortunate. Although Woodford did have institutional investors (Kent County Council being the most notorious), Woodford was primarily a failure of governance which can be primarily ascribed to wealth management platforms that hadn’t got the insight into what was going wrong.  Woodford was taking money from private investors who did not have the time horizons needed to buy and hold – they did not have the patience with their capital. Finally, Woodford seems to have lost that critical insight about whom he was managing money for.

Trustee responsibilities more grave than in DB

The managers of the mandates given out to Octopus and Nataxis hold an even more grave responsibility than were they managing money in a DB fund. In Defined Benefit schemes, manager failure can be mitigated by plan sponsors (employers) who pick up the balance of costs of paying pensions. Their covenant to their members includes making good shortfalls arising from manager screw-ups. The Trustees of Nest and Smart do not have a sponsor to fall back on, the managers they employ are directly responsible for the outcomes of members and members have no-one – not even the PPF or FSCS, to fall back on, if a trustee investment fails.


So long as master trusts were young, their investment strategies were simple- invest passively in highly liquid investments at low cost. But as they grow, their investment philosophy  can change. I laughed at Nest at outset for portentous pronouncements about “philosophy”, but no longer. Master trusts are  managing not just the outcomes for millions, but influencing where capital is allocated in the UK and around the planet. As Defined Benefits retreat from investing in real assets, so DC schemes find themselves at the forefront of the debate on how the economy meets the challenges of Brexit, climate change and a post pandemic re-boot.

How these huge and growing funds behave over the next ten years will influence the lives of the members who unwittingly invest in them. The impact of these investments won’t just be on their retirement but on their day to day lives.

Whether we like it or not, pension funds are major stores of this nation’s capital, we invest tax-payer money to encourage individuals and companies to add to this store and it is right that we hold pension funds accountable for the social consequences of investments – as well as the financial outcomes they bring.

It is beholden on all of us, financial advisers included, to think deeply about these matters and not dismiss ideas such as “patient capital” as many of the comments I read – do. Respect walks hand in hand with accountability, as qualities I expect from those who manage my money – and I hold financial advisers in respect and accountable for restoring and retaining confidence in our pension system.

I am reminded of the motto that we created to bring people together when we founded the Pension PlayPen  in 2007.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to ‘We’ve been here before’: IFAs round on gov’t DC illiquid assets plan

  1. John Mather says:

    I wonder how many IFAs have ever put together a structure to accommodate the long maturity funds that are best suited to “illiquid” investments.?

    Today the regulations make this almost impossible to do o a small scale even for sophisticated investors so IFAs simply distribute products designed and administered by others.

    When these go wrong it is the IFA community that deals with the compensation not the provider.

    Successful schemes are seldom reported and treated as outliers. If this had always been the case and applied universally then penicillin would never have been discovered

    Innovation is dead in pensions unless you allow funds, that do not need liquidity for decades, to design new strategies

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