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We look back at the pre-event surveys from our April and June Digital Summits and the May and July Digital Indabas. What did 70+ trustees and consultants tell us about their challenges and the opportunities they see in the changing investment environment? And what trends did we spot?
Liquidity issues exist, but not where expected
UK pensions professionals have adjusted to life in the COVID-19 environment, so their main concern about a second wave is not around personal safety, but rather the pace of economic recovery. And while market volatility started off as a relatively small concern, the growing realisation that it is not going away has made it the third largest external risk UK pension schemes expect to face over the next six months.
Because of the severity of the March sell-off, we initially expected schemes to become forced sellers of liquid and illiquid assets, or face LDI collateral calls. But four months on, we see liquidity issues arise in unexpected areas – 44% reported receiving less income from rents in July, and several were seeing a drop in dividend income.
UK schemes are reviewing their investment strategies
Given the deteriorating macro environment, many schemes have been conducting sponsor covenant reviews. But as these are being completed, we see a greater proportion of schemes reviewing their investment strategy. What key trends stand out?
Liquid equities are offering limited opportunities, according to our respondent base, and the growing need for income is redirecting UK schemes’ attention to alternative asset classes. We have seen a stable interest in infrastructure as the asset class offering the most opportunity during the COVID-19 crisis, but recently, interest in private credit has also increased from 37% to 71%.