Alpha Real Capital research said the move to illiquid assets is motivated by greater transparency, mounting opportunities, and the benefits of diversification. The research surveyed 100 UK professional pension fund investors. Illiquid assets are gaining popularity because they embody the potential for investors to earn a premium over more liquid assets.
The research comes as The Pensions Regulator recently announced that it will not go forward with capping investment in unquoted assets at no more than a fifth of a portfolio.
Eighty-five percent of surveyed pension fund investors said the scheme they work for will increase its illiquid asset allocation over the coming three years.
Boris Mikhailov, head of client solutions at Alpha Real Capital, remarks: “Illiquid assets offer the opportunity to earn a premium above more liquid assets which helps explain their growing popularity with pension scheme investors. With returns on some other asset classes squeezed, it makes sense to consider illiquid assets and nearly six out of 10 schemes are already allocating up to 25 per cent to the sector and the overwhelming majority are using illiquid assets in some shape or form.”
Shajahan Alam, CDI director at Alpha Real Capital, adds: “Pension funds are increasingly looking for certainty of returns through contractual cashflows, higher yields and portfolio diversification. This means growing allocations to illiquid assets. For example, Commercial Ground Rents and Lifetime Mortgage assets can deliver steady and reliable returns that match pension scheme cashflows while generating between 4 per cent to 5 per cent per annum above comparable government bonds. Commercial Ground Rents provide the added benefit of being inflation linked.”o]