Pension fund managers have raised issues over liquidity, with publicity to non-public credit score being cited as one of many foremost causes.
Almost one in 5 (18 per cent) pension funds mentioned they don’t have sufficient liquidity to resist hostile eventualities, in line with a survey from pension fund threat and return consultancy Ortec Finance.
Over the past decade, pension funds have elevated their investments in non-public belongings to spice up returns by the illiquidity premium, however now funds are reflecting on their potential liquidity dangers.
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The research within the UK, US, the Netherlands, Canada and the Nordics with senior pension fund executives whose funds collectively handle $1.451trn (£1.2trn) in belongings discovered {that a} additional 62 per cent believed they’d sufficient liquidity for many eventualities however admitted the state of affairs might grow to be problematic in excessive eventualities. Simply 20 per cent mentioned they haven’t any liquidity issues.
Round 60 per cent mentioned it’s the largest threat confronted by the funds they handle, whereas 25 per cent mentioned short-term liquidity is the largest threat. Solely 15 per cent mentioned the brief and long-term dangers are roughly equal.
The priority round publicity to non-public belongings was notably robust amongst outlined profit (DB) schemes. Of the managers questioned, 80 per cent reported that the chance of unfunded dedication poses a major or slight threat to the DB pensions business over the following three years.
General, 1 / 4 of the managers believed unfunded commitments past the management of pension portfolio managers posed a major threat, whereas 19 per cent mentioned it was not a threat.
Learn extra: Pension funds to extend non-public market allocations
Regardless of the presence of those liquidity issues, greater than half (58 per cent) mentioned liquidity is already well-managed and 28 per cent mentioned different dangers are extra urgent. Simply 10 per cent mentioned liquidity threat was entrance of thoughts, whereas 4 per cent mentioned it was not a serious concern.
“Our research highlights the liquidity situation that pension funds are dealing with, particularly given the largely unpredictable nature of projecting unfunded dedication and capital calls,” mentioned Ortec Finance managing director world pension threat Marnix Engels.
“To deal with this situation totally, funds ought to deal with situation modelling and stress testing. Situation modelling of the capital calls and distributions or non-public belongings will help funds perceive what their liquidity constraints could also be within the worst-case eventualities within the subsequent 5, 10, or 20 years.”
Unbiased analysis firm PureProfile interviewed 100 senior pension fund executives throughout Europe and North America. The survey was performed throughout November 2024.
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