16 March 2020

CFA Institute: Declining listings in the public markets and implications for retirement savers

With listings in public markets waning and private markets becoming bigger and more critical to economic activity, CFA Institute has released its second report in a series exploring the evolving role of public and private equity markets.

Publicly listed equities remain a key asset in most retirement portfolios, however the decline in listed public equity worldwide has potentially negative implications for retirement savers, with reduced investment options and lowered potential investment returns.

 

The report, Capital Formation 2: Investing Pension Contributions in Private Markets Responsibly, has been produced in response to increasingly loud calls for greater defined contribution (DC) pension fund participation in private markets. It reviews the existing pensions landscape in developed European markets and identifies the benefits and disadvantages of DC pension schemes increasing their investments in private companies and markets, such as private equity, venture capital, private debt and infrastructure.

 

The report identifies the following challenges to calls for increased DC investments into private markets:

 

• Value for Money: The focus of regulators on low cost as the key metric of value-for-money is likely to be an impediment. For example, charge caps such as the one imposed on default funds under DC schemes in the UK, would need to account for the higher expenses involved in the structurally complex private market strategies.
• Eligible Assets: The universe of permitted investments may need to be reviewed in order to enable DC schemes to participate in private market investments.
• Industry Disclosures: It is likely that private market funds will need to make more transparent their own disclosures on performance, costs, and charges in order to access DC scheme capital. It may also be necessary to review their traditional fee structure.
• Pooling Resources: Consolidation or pooling of small schemes may be necessary to generate enough scale to participate meaningfully in private markets. In the UK, there have already been efforts at encouraging this trend via the Master Trust structure.

Full press release on CFA Institute

Full report on CFA Institute: Capital Formation 2: Investing Pension Contributions in Private Markets Responsibly

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