The Productive Finance Working Group (“PFWG”) is a Bank of England, FCA and HM Treasury sponsored industry forum that was created in late 2020 to identify practical steps towards addressing the barriers preventing certain types of investors, particularly UK DC pension schemes, from investing in illiquid (or ‘productive’) assets like private capital funds.
PFWG Guides: Investing in Illiquid Assets: Key Considerations
The BVCA is a member of the PFWG, alongside other leading industry associations, including the Alternative Investment Management Association (AIMA), the Association of British Insurers (ABI), the Association of Investment Companies (AIC), the Investment Association (IA) and the Pensions and Lifetime Savings Association (PLSA). The group also comprises around 20 large DC pension schemes, investment managers and consultants.
The PFWG, with input from the BVCA and all of the above, has produced two important documents: ‘Recommendations’ to industry and policymakers, that were cited by the Government in its decision to revisit the inclusion of carried interest and performance fees within the DC charge cap rules; and more recently, a detailed set of guides to the key considerations for DC schemes that are considering investing in illiquid assets such as private capital funds. These are available below:
PFWG Roadmap and recommendations
'Investing in Less Liquid Assets: Key Considerations
’, published in November 2022, is intended to give DC pension fund trustees, their sponsoring employers and their investment consultants the tools to consider investing in assets such as venture capital, private equity, private credit, real estate, and infrastructure, where appropriate and in scheme members’ best interests.
We believe the guides offer a useful perspective for BVCA member firms wishing to deepen their understanding of the key considerations and risks that DC schemes face when investing in illiquid asset funds. They cover the following key issues related to investment in illiquid assets within default arrangements:
- Value for money: To help shift the focus from minimising cost to a more holistic value assessment, the guide outlines a process for assessing value for members from investing in less liquid assets and provides case studies on how that could work in practice for different types of DC schemes.
- Performance fees: To help DC schemes select, negotiate and co-create performance fee structures that could meet their members’ needs, the guide sets out key principles and maps them to specific features of performance fees to highlight their implications for DC schemes.
- Liquidity management: To support robust liquidity management and give DC scheme decision makers the necessary tools, the guide outlines how DC schemes can meet the liquidity needs of their members, while investing in less liquid assets, by managing liquidity at two levels – the DC scheme and underlying fund levels.
- Fund structures for less liquid assets: To help DC schemes select a route for investing in less liquid assets that meets their specific needs, the guide overviews the key features and considerations around the fund structures potentially available to UK DC schemes.
- Legal guide to the Long Term Asset Fund (LTAF): To help DC scheme decision makers become more familiar with the LTAF as a new fund structure, the guide highlights the key features of the LTAF, including its legal structure and a summary of the key terms.
- Due diligence: To facilitate high standards around investment in less liquid assets, this guide highlights the key considerations around due diligence on the investment managers and products.
To support implementation in practice, investment and employee-benefit consultants have also published a joint commitment to shift the focus from cost to value when advising DC decision makers, and a call to action for DC investment platforms to evolve their processes and systems.
Read the guide
In September 2021, the PFWG published a report entitled “A Roadmap for Increasing Productive Finance Investment”. Several of the Roadmap’s recommendations are now being taking forward via a number of ongoing PFWG industry workstreams. The BVCA remains particularly engaged in this continuing work as it relates to liquidity management, performance fees and raising awareness about investing into the asset class.
The BVCA has previously participated in HMT’s pensions taskforce which had looked into this issue as part of the Patient Capital Review