The headline poses a question that I suspect emerged from a marketing team meeting rather than LGIM’s member research. I was at a recent meeting of Legal & General savers – one of over 10,000 on a Teams call. I got no sense that my fellow savers were thirsty for illiquids and certainly didn’t get the impression that global instability was driving any of us towards the illiquidity premia – of better returns and better ESG.

The headline made me read the article, if only out of curiosity. It’s posted on LGIM’s website 

Here’s the main thrust

.. even as the pensions industry and its regulators hammer out the details of introducing and/or increasing investments in private markets into DC funds, LGIM’s latest look at our DC pension members’ views on environment, social and governance (ESG) issues⁴ found that from their perspective, these type of investments appear to be rather popular already. Whether or not DC savers have even heard of illiquids.

In fact, so keen on illiquids are our DC members that the majority of the 3,634 that we interviewed in the UK would be prepared to pay higher pension fees to have them – which is noteworthy given that our survey was carried out at a time of rising prices, and just months after the Office for National Statistics estimated that consumer price inflation was the highest in more than 40 years⁵.

Almost three-quarters (72%) of our surveyed UK DC members said they’d pay higher fees to invest in infrastructure that supported renewable energy sources, such as solar parks and wind farms.

Source: Legal & General Investment Management (LGIM) survey in June 2023 of the views of 3,634 defined contribution workplace pension members in the accumulation phase, on environment, social and governance investing. Respondents were split across generations and genders and across the UK.

Lesson one – People don’t understand “fees” and “performance”

On the one hand , this looks very good news, it certainly suggests that the great British public want their money to matter.

On the other , it rather misses the point. For the one thing, “higher fees” is an abstract notion that doesn’t have real-time consequences. A better way of framing the question would be “would you be prepared to sacrifice some of your pension so that your money was invested in this way”.

Sure enough, LGIM did ask a version of this question and it did result in different (less positive) answers.

It’s a worry that savers don’t realise that higher fees result in lower outcomes, but it’s not surprising.

What’s worrying to me is that 3634 LGIM DC savers are being fed a subliminal message that high fees do mean lower performance and that investing in illiquids will lead to worse outcomes.

What is LGIM really trying to tell us?

Lesson two – Global Instability is always with us.

To suppose we are in a time of increased global instability is lazy thinking. It is true that we live in a time of war, famine, pestilence and poverty. These four horsemen of the apocalypse have been around much longer than we have. They are an omnipresent feature of human existence. Every generation considers they are living in a time of existential threat yet our generation is living longer, in greater comfort and with less threat to ourselves than any other. Like most generations we worry whether our improved situation is sustainable but that does not stop us investing for the future.

To suggest that we are in a period of particular global instability, as this survey and article does, is to reinforce a prejudice (bias) in our behaviour , that leads us towards taking less risk.

It is in the nature of insurers such as Legal & General to reinforce a prejudice that we live in unstable times. It plays to our desire to be protected.

In the LGIM world view, investment in illiquids equates to investing in things that protect us- better roads, housing, better local jobs and renewable energy. It is hard for anyone to object to these as beneficial.

But the challenge of the Government’s Mansion House reforms, go way beyond the homespun certainties of an insurer’s commitment to support these concepts.

The Government wants us to commit our money to projects which might well fail. The Mansion House reforms do not just mean investing in the infrastructure of a benevolent society but to striving for new and speculative advances in medical science, biodiversity, financial services and any number of enterprises with a low risk of success. These are not on the list of illiquids put forward by Legal and General but they should be.

Because for every time that a space rocket crashes in Cornwall or California, another puts new technology in the sky capable of achieving great things – hopefully socially beneficial but certainly hugely productive.

Asking people to sponsor projects that risk failing but could deliver us the next Tesla or Google, would not solicit the same response.

Lesson three; Be careful what and how you read

I dislike self-serving surveys and this one from LGIM is one such. It puts forward the view of illiquids that serves L&G’s purposes. It creates a false impression that Britain is behind the investment strategy employed by L&G’s big internal funds, that back their annuity books and it plays down the very different issues relating to DC pension saving – where the investment is made at the risk of the saver and is equity rather than debt based.

The subtle deployment of market information from insurers to suit their purposes is unlikely to be challenged as it is dressed up as aligned to ESG and to Government reforms. But the reality is quite different.

The implausibility of the headline , mirrors the implausibility of the message. These are the message I take away from the headline and the article

Most People do not like taking risk – though often if it in their best interest.

Most People do not understand the relationship of fees to outcomes

Most People are not involved in the investment of their pension money

The supremacy of L&G and other insurers depends on our unquestioning acceptance of the primacy of their benevolence.