Alternative assets in DC allocation: time to put this into practice?
Last week, we participated in a panel discussion at the Pensions Management Institute (PMI) Aspects Live conference where we explored the role of alternative assets in DC asset allocation so wanted to share a brief recap in case you missed it.
Hosting and moderating the panel was Darren Philp , Founder of Shula PR and Policy. Alongside him sat WGC’s asset allocation strategist Jeremy De Pessemier, CFA , Railpen’s CEO, John Chilman and Aon’s DC Solutions CIO Jo Sharples
Jeremy opened the session by recapping on the Pensions Policy Institute (PPI) 's recently published report into alternative assets and gave some background on why we took the opportunity to partner with them on it; namely to highlight that whilst appetite towards alternatives is high, exposure within DC schemes still remains relatively low.
The PPI reported on the same topic back in 2019 and 4 years on, not much has changed commented John Chilman, in particular around accessibility and platform barriers to entry for many schemes. This was challenged to some degree by Jo Sharples. She believes the government has in fact been quite active on the topic over the last few years given the recent arrival of LTAFs, which in her view, reflect a greater focus on value. John responded by saying we need to look at value for money across all asset classes and that DC schemes can no longer stay anchored in a 80% equities and 20% bonds passive split.
The topic of diversification was also covered at length and a key point raised by Jo was that we shouldn’t confuse this with non-correlation. What we need to look at is resilience and the last year gives us a great opportunity to revaluate. A member of the audience agreed with this point and went on to say an asset like gold could be a beneficial addition to pension portfolios; as a hedge against inflation and a buffer during times of economic uncertainty.
Darren brought the session to a close by surveying the panellists with the following question: What should trustees ask their investment consultants about alternatives assets?
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Jeremy concluded that whilst a lot of the discussion on alternatives relates to alternatives within the growth portfolio or accumulation phase (e.g. Private equity, Real Estate etc.) what alternatives should be considered in the de-risking phase alongside fixed income?
John added, what can we learn from DB schemes who have been allocating to alternatives for years?
And Jo finished by saying it is key to re-focus all minds around the table on the importance of value over cost.
So what was my key takeaway from the session? It seems DC asset allocation should focus on true diversification where both non-correlation and resilience are brought into play but more importantly put into practice.