Pensions Policy Institute

DC scheme investment in illiquid and alternative assets

BlackRock |01-Apr-2019

For many years, UK Defined Benefit (DB) pension schemes have been aware and taken advantage of the potential benefits offered by investing in illiquid and alternative assets. Yet Defined Contribution (DC) schemes have lagged behind in their adoption of this asset class for a number of reasons.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

The importance of returns in DC

BlackRock’s latest DC Pulse research found that only 28% of UK DC scheme members surveyed felt on track to allow them to live the lifestyle they want in retirement.

Adding illiquid investments to DC portfolios may help to improve member outcomes, as they could offer better return potential than traditional DC investments of equities and bonds over the long term. This would be well-suited to the long—term horizon of most DC investors.

This research paper from the Pensions Policy Institute, sponsored by BlackRock, explores why illiquid investments could benefit UK DC schemes, what the current challenges are to their inclusion in DC portfolios, and how these could be overcome.