Some of Canada's pension schemes are among the largest institutional investors in the world and take a distinctive approach to their investments, with each scheme managed in-house and making direct investments in often illiquid asset classes like private equity or infrastructure.
The Ontario Teachers' Pension Plan is £140bn in size and owns Bristol Airport and Birmingham Airport as well as recently buying wealth manager 7IM, while the Caisse de dépôt et placement du Québec, which manages the assets of the Québec Pension Plan, is £250bn in size and owns significant stakes in Eurostar, Heathrow Airport and platform technology provider FNZ.
This desire to emulate Canada is also the thinking behind the creation of the national wealth fund, which is allocating £7.3bn to infrastructure projects, and is assisted by the British Business Bank, which would also like DC money to go into a new growth fund it is developing.
In the private sector, new funds are being launched, most recently the Future Planet Capital co-investment fund for DC schemes.
However, mention the prospect of investing into illiquids – at this stage, mainly unlisted equities – and anyone in the retail financial space immediately thinks of Neil Woodford. As is well known, he came unstuck after taking substantial stakes in small, early stage, unlisted equities.
While some of them failed, big investors wanted to take money out when his equity income fund started to underperform and the fund was suspended because it could not meet redemptions.
While many in the retail world baulk at any further talk of investing people's savings into unlisted equities, the venture capital world sees Woodford-style behaviour as very much an outlier.
The view there is that he invested heavily in firms that he loved and kept piling in when there was no support from other investors; in addition he had no experience or track record in the sector, and was trying to run long-term VC investing in a fund with daily liquidity.
The proponents of investing in (theoretically more sensible) illiquids argue there would be a substantial uplift to DC pensions offered by these investments. In the UK it is currently difficult to ask people to increase their contributions, and with private sector savers now all investing in a DC scheme, pension funds are being asked to look at other countries where it is common already to invest in private markets.
Investment returns from Australian Super funds, which allocate 21 per cent to alternatives (including infrastructure and unlisted property) made investment returns of 9.2 per cent for the year to the end of June last year, and 7.4 per cent for the 10-year period, according to the Association of Superannuation Funds of Australia.
