James Lawrence, CIO of Smart Pension, is our guest for episode six of series six of The Profession Investment Podcast. He chose Professional Pensions story that there’s no guarantee DC megafunds will lead to higher returns.
We discuss how there is currently a tendency to think bigger is always better in pensions schemes. But any investment professional knows size can also hinder investment returns – there are good reasons asset managers gate funds at certain sizes.
If asset owners want to invest in smaller companies and smaller asset managers, one solution is to build third-party fund of funds who can select those specialist asset managers.
Fees are obviously an important consideration in this scenario as private assets are already more expensive and fund of funds add an extra layer of fees. Kept a lid on these costs is vital.
James unpacked the different ways asset owners can invest in private equity and the different pros and cons of primary and secondary investing as well as co-investing.
We broadened the discussion to different types of private assets and where they belong in a DC portfolio before diving into a debate about whether asset owners should be thinking about building internal teams to invest in private assets or use third-party asset managers.
We discussed the resources and time needed to build an internal team and whether this would ever be as effective as an asset manager given asset owners can pay less and don’t have the same track record.
Finally, James talked about how Smart Pension is investing in green infrastructure which led us to debate how sustainable investing and net zero is evolving.
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