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Broader Reforms Needed to Bring Alts to DC Plans

By Crucial Clips     November 24, 2020
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FT FoAM, Sep. 18, 2020 

DANIELLE VERBRIGGHE, MANAGING EDITOR, FUNDFIRE: One piece of news that came through this year was the U.S. Department of Labor seeming to greenlight private equity within defined contribution plans. What are your thoughts on how feasible it is to be seeing private alternatives show up in defined contribution and target date funds? David, do you have thoughts on that?

DAVID HUNT, PRESIDENT AND CEO, PGIM: Sure, I can lead off. I'd be interested in others' views though. I think that the big thing that we need to do in the retirement space is to try to make sure that the advantages that defined benefits have for years been able to generate can be transferred to defined contribution. And those benefits are numerous, but in particular, they are the ability to invest more broadly in private asset classes.

So, I think that this is a welcome introduction. But I also think it comes with a lot of hair on it. We all know that attempts to put illiquid assets into a more liquid form is a risky proposition. And you only have to look at the recent history of real estate in the U.K. to see some very good examples of how that doesn't work very well.

And so, I would say that we're going to have to be very careful how we structure this to make sure that we're able to meet the rightful demands of investors for liquidity in their DC plans. But more broadly, we need to reform our DC system in this country substantially. It needs to have a broader range of asset classes. It also needs to have a broader range of retirement income solutions. And I think that's actually going to be the major future front for what asset managers can do in the retirement space.

DANIELLE VERBRIGGHE: Chris, how you see the prospects for private equity and defined contribution? Are there risks? Are there other opportunities for the industry?

CHRIS DEMETRIOU, CEO, AMERICAS - ABERDEEN STANDARD INVESTMENTS: Yeah, similar view to David. I think it's the right aspiration for sure. As long as there is inequitable access to using investment opportunities, there will continue to be inequitable — it will continue to perpetuate the wealth gap and the income gap that exists. And that will continue to have knock-on implications for our society and our politics. So, it's the right aim.

I think the DOL's statement is a nudge in the right direction, but there's a lot more work that needs to be done. Having just gone through a process of launching a retail-oriented fund that blends public and private market, I can tell you that there is a wide range of views, not only between regulators, but within regulators themselves, different departments within regulators, about their comfort levels here.

And I think the fiduciaries of defined contribution plans are not going to be rushing to be taking a view on this. They'll wait for far more consensus coming from a broader range of both — from regulators and indices before they start dramatically shifting the allocation in this direction, would be my view.

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Tags:  Retirement planning , Portfolio management

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