“There'll be different flavours and different sizes of allocations, depending on who you're talking to and the type of investor that they are, but I firmly believe that there’s a role for some form of private assets and private markets in pretty much any investor portfolio.
Jesal Mistry, head of DC investments at Legal & General, likewise says the fundamental reason why the asset manager launched a private markets access fund to its DC members was to provide them with the potential to achieve “better outcomes”.
“There are two main areas we believe that private assets can support the potential for better outcomes for DC savers,” Mistry says. “They allow access to a broader opportunity set, so diversification.
“[There is also] a potential source of outsized returns, either from illiquidity premia or lower market efficiency, leading to increased scope for skilled managers to add potential value.”
Potential for higher returns
Indeed, Leach at WTW, which is waiting for regulatory approval for its private equity-focused LTAF, says a big problem is savers not having sufficient funds for their retirement.
“Historically, private equity has been one of the higher returning asset classes,” Leach says.
“And therefore, with a proportion and a population saving for its retirement that is typically reaching retirement without sufficient assets, the biggest way that we could have an impact and make a difference is trying to solve some of the return gap in their portfolios, by adding an asset class that fundamentally – if you believe that you can eke out an illiquidity and skill premium from private equity over and above public equity – adding it to the portfolio makes the most difference to that end saver in their retirement.
“The second reason was that we felt it was probably going to be the hardest thing to necessarily get right. And so from an industry perspective, we felt that lots of others would start with other problems in the private market sphere before they perhaps tried to solve for the private equity conundrum.
“We do think private equity is the more challenging one to get right. And so we felt we could make a bigger difference to the industry, our clients and investors, by doing something that perhaps others might shy away from.”
Chloe Cheung is a senior features writer at FT Adviser
