As Rachel Reeves gears up to deliver her Mansion House speech later this week, many in the private markets and defined contribution pension space will be waiting to see where she turns next with her pension reform.
It was last year's Mansion House speech, when then-chancellor Jeremy Hunt declared that nine (later 11) pension providers would agree to allocate 5 per cent of default funds to illiquid assets by 2030.
But for many in the private markets sector, this is just the beginning.
For those campaigning to have more DC funds invested in illiquids – and some believe as much as 20 per cent of a DC default fund should be invested into private markets – the Mansion House compact and ongoing regulatory reform is not enough.
The latest target are the rules over permitted links. These rules, which were amended four years ago to allow not least the introduction of long-term asset funds, determine what is a 'permitted link' for an insurance company to invest DC funds into.
They state the rules that allow allocation to property, listed securities, and approved money market instruments, for example.
They also allow allocation to LTAFs, the illiquid open-ended structure designed chiefly for DC fund investment, set up with a greater degree of liquidity than a typical private market fund, but not as much liquidity as a conventional open-ended fund.
A few of these funds have been set up already, and are designed to invest in green infrastructure, for example, unlisted equities, and venture capital.
But for some in the sector, these funds are not enough.
The view in the private capital industry is that they do not offer a 'full throttle' enough proposition for investing in private assets. The argument, they say, is that because of the liquidity requirements, these funds must keep some listed assets, which will be a drag on performance.
In a paper published by investment consultancy Redington, "What does the latest illiquid guidance mean for DC Schemes?", which both reflects the BVCA view and their own work done on private markets, it says: "LTAFs seem to be ‘captive’ in many cases, with a platform provider typically offering only their LTAF at this stage, limiting the freedom of investment opportunity and choice of best-in-class managers.
"We believe that platforms should, eventually, offer more than one option for investment."
The BVCA's official position, as outlined in its pensions and private capital expert panel interim report, published in September, is that: "The LTAF has been successful in generating momentum and interest in private capital investments amongst UK DC schemes, and a number of LTAFs have now been launched.
"The Financial Conduct Authority should now make targeted changes to the relevant regulations so that investor access is not unduly restricted and to encourage more LTAFs to come to market (and drive scale)."
It would like changes to the rules on permitted links, either excluding default funds from the permitted links rules or making certain private capital fund structures a conditional permitted link, which they are currently not.
