Isio seeks to meet demand for selling illiquid assets – while XPS does the same for those seeking to buy.
The service, called i-FLO, is designed to support the “significant demand” among pension schemes for an efficient way to sell illiquid assets when approaching an insurance transaction.
Many schemes face issues getting a fair price for illiquid assets when selling them early. The need for liquidity has spiked since the gilt market crisis of 2022, which dramatically reshaped the funding positions of many defined benefit schemes.
In a press release, Isio said the typical approach of using brokers to sell assets was “inefficient in nascent markets such as private debt and infrastructure equity secondaries”.
The consultancy group’s new service seeks to connect selling schemes directly with buyers, with the aim of reducing fees and making the sales process more efficient.
With more established private market asset classes such as private equity and real estate, Isio has set up a panel of brokers for schemes to use. It said it was also “exploring other innovative ways of obtaining liquidity for schemes outside of outright sales”.
“Private markets asset classes have provided excellent sources of alternative income and growth for pension scheme investors in recent years, but the fallout of the liability-driven investment crisis and being closer to the endgame is prompting many of them to sell,” said Ajith Balan Nair, head of asset class and manager research at Isio.
“Unfortunately, this is often easier said than done, and the process for exiting illiquid assets can be slow and expensive.”
He added that Isio intended to expand the platform to provide “effective solutions for the buyers and sellers of illiquid assets across the institutional marketplace”.
XPS to help private asset buyers
Meanwhile, XPS Pensions Group has developed an investment approach to help defined contribution (DC) schemes increase their private asset allocations.
The company said the method means that DC schemes with £30m or more in assets can target an allocation of up to 20% in illiquid assets.
It uses a third-party investment platform to manage blended private markets funds that are tailored to individual schemes. The annual charge is expected to be approximately 0.4%, which XPS said would be “offset by higher returns and greater diversification”.
XPS chief investment officer Simeon Willis highlighted that the tailored approach included liquid and illiquid assets to give schemes “autonomy over choosing funds and how the allocation changes through time”.
“This new approach will give schemes substantive exposure to illiquid assets, without the potential for other investors to eat up their liquidity buffer for breakfast,” Willis said. “This liquidity snaffling has caused high profile difficulties for pooled arrangements which have attempted to overcome the need for liquidity by pooling liquid and illiquid assets together in a daily traded fund.”
The move follows the government’s drive for increased investment in private markets through the Mansion House proposals set out last year by chancellor Jeremy Hunt.
Mark Searle, head of DC investment at XPS, added that the approach would help schemes take steps towards meeting the Mansion House goals without having to wait for regulatory changes.
Further reading
How schemes are solving illiquid asset issues (20 May 2024)
Pension trustees must state policy on investing in illiquid assets (29 September 2023)
Can a specialist service help endgame schemes manage illiquid assets? (25 July 2023)
