Andrew Warwick-Thompson writes a push-me-pull- you article in Corporate Adviser about the investment of DC assets in private equity. Which concludes…

In summary, the Mansion House Compact has stimulated welcome debate about DC schemes investing in private assets. However, caution as well as enthusiasm is required.

The focus on private equity only is too limited and it will be preferable if a wider range of private assets is considered.

Further, the focus on the UK will likely be problematic because it creates concentration risk, and it is more likely in any case that trustees will find a greater choice of suitable private asset investments overseas.

Finally, care is needed to ensure that illiquid assets added to sub-scale schemes do not act as a barrier to the policy objective of small scheme consolidation.

I’ve put the final paragraph in yellow as it represents an attitude prevalent among DC trustees which is particularly worrying. Its “push me” is a wish to comply with Government edicts , its “pull you” is the fiduciary duty to do nothing that might bring about member detriment.

This allows trustees to bemoan their fate as being in an impossible position , any definitive course of action leading to extreme pain in the body corporate

Debate and consideration are one thing, but getting things done is quite another. I hope that in the coming year, trustees will get on with getting things done rather than complaining about the conflicts that stymie progress.

It is absolute madness for DC or DB pension schemes considering consolidation or buy-out to load up with illiquid assets, they should not be pulled into doing so. But it is madness for them to continue trading if they know they can never be of a side to deliver members the value for their money that Andrew talks of in his article.

The consolidators, and Andrew is Chair of the Board of a small but well supported Master Trust, should get on with consolidating and if they don’t think they will succeed – consider merging with someone that can. I assume that with the backing of the Lloyds Banking Group, Andrew considers he can see his scheme becoming big enough to take a healthy stake in long term growth assets (private and public) , but if he doesn’t – he should enter into talks with a master trust that can.

Arguments about whether increased allocations to UK assets contravene the self-imposed mandate of the Statement of Investment Principles, suppose that the SIP is father to the plan. The SIP is servant to the plan – the plan is to maximise member outcomes. If he believes that private assets are best purchased  overseas  there is no need to breach a SIP that encourages overseas investment, the Mansion House reforms do not prescribe overseas investment, Scottish Widows do not require AWT to comply with the Compact.

Put the other way round (push rather than pull), the cost of investing in private equity or private markets should not prevent the trustees from seeking better investment outcomes. If the trustees cannot see their master trust being competitive v other master trusts by increasing its cost – it should “pull” the emergency stop and get consolidated.