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Friday 24 January 2020


Pension funds benefit more from illiquid private debt, experts say

Written by Sunniva Kolostyak

Pension funds should look to more illiquid investments in areas such as aircraft, infrastructure and real estate-backed debt, Ostrum Asset Management has said.

In an interview with European Pensions, Ostrum CEO Matthieu Duncan said he is not convinced that passive investments are the solution in the context of very long investment horizons.

“Active is something that typically works over a long period of time,” he said. “If you are an individual looking to make a quick buck, that’s one thing, but if you’re a pension fund with long-term liabilities, then having a long-term view in terms of how you invest I think is important.”

Duncan highlighted the long horizons work to pension funds’ advantage when it comes to making less liquid investments, by capturing illiquidity premiums. He highlighted that funds would benefit from aircraft-backed debt, infrastructure-backed dept and real estate-backed debt.

Ostrum CIO real asset private debt Denis Prouteau highlighted that private debt is a good match for longer-dated pensions liabilities.

“If you look at the aircraft market, you need to think about reality. You’re looking at a market which is expected to reach something like $190bn by 2022 simply because of the trend of air travel and renewability of fleets. So, it’s a massive market where providers will see very solid long-dated products for investors.”

Prouteau also noted the size of the infrastructure market and the maturity of real estate.

“All these guys provide yield. Every year you are going to get a yield,” he said. “It is about providing a safe and predictable cash-flow over the longer duration.”

Duncan noted that if asset owners look at returns over long periods of time, not just at “what’s in favour and what’s not” in market cycles, “picking the right things for long periods of time does add value and that’s what active management should be all about”.

“[Illiquid private debt] is a good match and a good fit for some pension funds that have the right maturity profile. By matching those longer liabilities with less liquid assets you get a better return for your buck.”

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