Partners Group has launched its third private markets offering tailored to the defined contributions (DC) pensions industry, this one catering to the UK market.
The Partners Group Generations Fund – which is structured as a Non-UCITS Retail Scheme – will provide investors with access to private equity, private debt, private infrastructure and private real estate, while simultaneously providing daily liquidity and pricing. 40 percent of the fund will be dedicated to direct private market asset class investments, a further 35 percent will be a yield-seeking portfolio, such as corporate credit and real estate debt, and the final 25 percent is an allocation to the stocks of listed private equity, real estate and infrastructure firms. This latter portion provides the necessary liquidity, while a gating mechanism prevents a run of redemptions.
Partners Group is not the only firm on the block developing products to tap into the highly promising DC and retail investor markets. KKR, Blackstone and Carlyle have developed products suitable for retail investors, while Pantheon has launched a retail investors' fund in partnership with AMG and hired a “head of US defined contribution”.
And it's easy to see why. Defined benefits (DB) pension schemes, on which the private equity industry has traditionally relied, continue to decline as a proportion of total assets. Globally, DC assets grew 7.1 percent over the last 10 years and now account for to 48.4 percent of global assets, according to Towers Watson data. DB assets, meanwhile, grew at a slower pace of 3.4 percent, suggesting it won't be long before DC assets overtake DB. Firms that are not thinking about tapping the DC market are missing a trick.
Aberdeen Asset Management's global head of alternatives Andrew McCaffery told PEI earlier this year that DC-specific products are “a potential Holy Grail” for the firm.
However, as the latest offering from Partners Group shows, tapping into DC markets around the world is far from straightforward for private equity firms. In order to meet the liquidity requirements of UK DC investors, the fund has an innovative structure which took years to develop – not to mention the manpower needed to provide daily liquidity and pricing.
What's more, although undoubtedly a burgeoning part of the market – according to data from McKinsey published last April the UK DC market represents £630 billion of assets with an expected compound annual growth rate of 10 percent in the next five years – it is still early days.
With auto-enrolment into DC pension schemes only coming into effect in the UK in late 2012, the size of the pot is still relatively small, and such funds (the “alpha”-generating, higher cost offerings) are designed to attract just a small portion – 10-20 percent – of the cash in that pot.
This is, therefore, neither a quick nor an easy fix. It requires wholesale buy-in from those at the top of the firm and a willingness to dedicate time and resources to something that may not pay off for years.
But the industry cannot afford to stand still. To ensure longevity, firms must not only respond to, but anticipate, the changing needs of their investors. The route that Partners Group has taken – an offering that blends exposure to everything from traditional private equity to real estate secondaries to yield-seeking credit with a liquid bucket of listed stocks – suits the firm's diversified footprint. Other firms may choose a different path. But it's a challenge the industry would do well to take on.