Even without the corporate DB schemes that Rachel Reeves has carved out of her recent investment review, Reeves has the best part of £2 trillion pounds in DC and LGPS funds that can be partially allocated to grow those parts of the UK economy that are not funded by listings on stock or bond markets.

To some extent, UK pensions are just the tip of a much wider reorganisation of insitutional assets

FT – Thursday 24th October

But the UK pension schemes are particularly low-hanging fruit, they are being lined up to reallocate by the Chancellor keen to get value for the tax-relief she begrudges them

Private credit and equity, property and wider infrastructure and the multiple sub-asset classes of what are called “private markets” look to be the big growth areas following the October 30th budget.

As I can see from the conference I am due to speak at this morning, there are no shortage of firms ready and waiting to become part of our pension funds strategies. But who will be the winners and who the losers?

Winning strategy one – good governance.

I suspect that many private market managers underestimate the value placed by pension fund trustees and their advisers on a well governed investment proposition. The mark of a well governed proposition is in the clarity with which it explains the systems and controls that manage risk. Risks for pension funds are various and understanding them as important as articulating value

Winning strategy two – transparency

The issue is not that managers make money, that is expected, but there needs to be a clear look through to the sources of the profits extracted and the value that is offered for the money taken.

Winning strategy three – DC schemes must avoid the J-curve

Performance matters , even in funds investing for long-term assets, an immediate fall in valuations can materially impact the value for money statements being made by DC schemes to members and regulators. The public positioning of commercial schemes in performance league tables over the years to come means these schemes cannot afford to wait three of four years for performance to feed though, they are looking for immediate investment with no dry powder and for investments to show positive valuations early-doors.

Winning strategy four – be smart and design products that meet DB scheme needs

Although the bulk of Governmental attention is on DC schemes and LGPS, there is a lot to be done with and for schemes that are in an “end-game”. Typically these schemes are clearing out their private growth assets in readiness for buy-out. There is a fertile secondary market for assets which can often be purchased at fire-sale prices.

There is also a ready market from schemes that are looking to run-on rather than buy-out to diversify with private market assets. Offering new for old strategies in the DB market – typically using the secondary markets offered by firms such as Ardian , is smart.

Winning strategy five – be smart on price

There is nothing wrong with performance fees, provided they are being charged on a risk-sharing basis. Charging performance fees where no risk is being taken is a no-no for pension schemes.

There is nothing wrong with charging for a service, provided that there is a look through to where the money the scheme is paying to the source of those payments,

Especially in the DC market, a performance fee makes sense not just as a means to keep the base fee low but as a way to align the VFM of the scheme to the IRR of the manager, There is no problem under the net-performance basis of DC VFM calculations with higher fees being taken when value is delivered. The workplace pension charge cap is not breached on such occasions.

The key to successful selling into the DC market , is to find a charging structure that suits the client, this may sound a lot of work, but it is essential that private market managers understand their customers, many of whom are new and fearful of anything that is not listed.

Winning strategy six – patience

I was struck at the dinner I had with private market COOs last night, that everyone was in a hurry to win. The culture is quite different from the get rich slow approach of institutional pension funds.

It takes time for pension funds to understand and become familiar with their fund managers and though “alternatives” have been an asset class within pensions for decades, we are entering a new phase of investment where “alternative” is becoming “mainstream”. It is easy to underestimate the adjustment time needed for trustees, consultants and funders of DC schemes and ongoing DB schemes to adapt to a new paradigm.

So I have my six flash-cards for my conversation this morning, There is nothing that so focusses the brain as the possibility that you will make a total fool of yourself, something I am more than capable of doing.

But narrowing down the key messages to six , has helped me to bridge the gap between the Private Markets European COO Summit 2024 and the PLSA annual conference. I may go some way this morning , but I think the gap is rather wider than any fireside chat can span.