"Most of our DC schemes' administration and investment charges are 50 basis points, a number of clients are below that. [With regards to] the 75 basis points in our experience, we're nowhere near that."
And scale makes a difference. Of the typical private equity fee structure of 2/20 (2 per cent annual management fee and 20 per cent performance fee), O'Neill at Nest says: "Naturally we don't pay the 20 and can't afford the 2."
However, Royal London has chosen not to sign up to the Mansion House compact precisely because of price.
A spokesperson for the mutual says: "Investment in these types of illiquid assets tends to involve higher costs, and this is problematic when the market for workplace pensions is so focused on charges.
"In practice, many providers have chosen the cheapest investment options, such as index trackers, for this very reason."
The spokesperson adds: "We already hold over 10 per cent in unlisted, illiquid assets in our core workplace default funds. Much of this is our property portfolio, some of which is targeted at helping the same early-stage UK companies in sectors such as life-sciences."
Transparency
Another issue is the transparency surrounding illiquids. Private equity is often looked on unfavourably because of the lack of disclosure compared to the demands of publicly-traded stocks. However, those who use private equity dispute this.
O'Neill says: "The private equity manager is responsible for not just meeting the chief executive but appointing them, so they go far more in depth. The access we get to Apple is nowhere near what we get to a [private] company."
He is also visiting a few forests in the US this month, under the management of a timber investment management organisation, in the company of consultants who can give an opinion on the quality of the soil, the care of the trees and viability of non-tree worthy earth for alternative use.
The DWP, Financial Conduct Authority, The Pensions Regulator and HM Treasury have all been developing ways to deal with some of these issues and encourage more schemes to invest in illiquid assets, and increase in size.
Long Term Asset Funds were introduced in 2021 as a new product to make it easier for DC Schemes to invest in illiquids and get round the usual daily liquidity restrictions.
They invest in a range of illiquids: private credit, private equity, infrastructure and property; and so far funds have launched from Schroders, BlackRock, Aviva Investors and Waystone/Fulcrum Asset Management.
The idea is that they offer more regular liquidity, such as monthly or quarterly, and a combined pool of assets.
