UK workplace pension scheme TPT Retirement Solutions is to invest GBP54 million into private equity through its defined contribution (DC) Master Trust default target date funds.
Members of TPT’s Target Date Funds, whose investments are managed by AllianceBernstein, will see 3.5 per cent of their pension pot allocated to private equity investments at the growth stage. The total percentage will decrease as members get closer to retirement age.
Research by AllianceBernstein shows that over the long-term, investment in private equity is likely to provide higher returns than public markets. The allocation is expected to contribute an additional 3.0 per cent on an annual basis above global listed small cap equities. For example, for a 25-year-old member who plans to retire at the age of 65, this incremental return enhancement could add a cumulative 2.0 per cent to returns by the end of the growth stage of TPT’s Target Date Funds.
The allocation to private equity will be in listed private equity assets such as investment trusts and the stock of private equity investment managers. This approach is expected to provide long-term return enhancement, while also providing diversification to the funds’ growth assets and avoiding the high costs and illiquidity of direct private equity investments.
Members of TPT’s Target Date Funds will see no change in costs.
Philip Smith, DC Director at TPT Retirement Solutions, says: “Our investment into private equity is leading the way for how DC schemes should be investing in the UK. It shows the ability of Master Trusts to offer greater diversification and better returns for our members. Not only will the allocation towards private equity be beneficial to members, but it can also act as valuable source of capital for growing businesses.”
Henry Smith, Product Manager—Multi-Asset Solutions at AllianceBernstein, said: “Our analysis shows that investments into private markets can perform better than public markets over an investment lifecycle. It is therefore a logical step that TPT can include private market exposure for its members. TPT’s members are getting access to a sophisticated investment approach that is looking to enhance the value for money they receive at retirement.”