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Declining Listings in the Public Markets and Implications for Retirement Savers

New CFA Institute research identifies the benefits and challenges to calls for increased defined contribution pension schemes participation in private markets

London, United Kingdom 16 Mar 2020

With listings in public markets waning and private markets becoming bigger and more critical to economic activity, CFA Institute, the global association of investment professionals, has released its second report in a series exploring the evolving role of public and private equity markets. Publicly listed equities remain a key asset in most retirement portfolios, however the decline in listed public equity worldwide has potentially negative implications for retirement savers, with reduced investment options and lowered potential investment returns.


The report, Capital Formation 2: Investing Pension Contributions in Private Markets Responsibly, has been produced in response to increasingly loud calls for greater defined contribution (DC) pension fund participation in private markets. It reviews the existing pensions landscape in developed European markets and identifies the benefits and disadvantages of DC pension schemes increasing their investments in private companies and markets, such as private equity, venture capital, private debt and infrastructure.


The report identifies the following challenges to calls for increased DC investments into private markets:

  • Value for Money: The focus of regulators on low cost as the key metric of value-for-money is likely to be an impediment. For example, charge caps such as the one imposed on default funds under DC schemes in the UK, would need to account for the higher expenses involved in the structurally complex private market strategies.

  • Eligible Assets: The universe of permitted investments may need to be reviewed in order to enable DC schemes to participate in private market investments.

  • Industry Disclosures: It is likely that private market funds will need to make more transparent their own disclosures on performance, costs, and charges in order to access DC scheme capital. It may also be necessary to review their traditional fee structure.

  • Pooling Resources: Consolidation or pooling of small schemes may be necessary to generate enough scale to participate meaningfully in private markets. In the UK, there have already been efforts at encouraging this trend via the Master Trust structure.

Sviatoslav Rosov, PhD, CFA, Director, Capital Markets Policy EMEA for CFA Institute and lead author of the report said: “In today’s low yield environment, there is a plausible argument for policies designed to increase DC scheme investments in private markets. However, policymakers should not assume that this shift would automatically result in higher risk adjusted returns for retirement savers. While the range of investment options would expand, private market outperformance of public markets is a story with much nuance. Further, the illiquidity and high fees associated with private market investments do not reconcile easily with the existing daily liquidity market norm for pension schemes, and the focus by regulators on low cost as the sole metric of value for money. Regulators, pension schemes and private market participants will all need to adjust their behavior and expectations for this policy to be a success.


Olivier Fines, CFA, Head of Advocacy EMEA for CFA Institute and contributor to the report said:

“The European Union has long said that improving market funding of SMEs and infrastructure in Europe is a key priority. With the Capital Markets Union initiative being reinvigorated, this is a perfect time to consider the possibility of deploying DC scheme assets towards investments outside of listed public equity and debt. This report sets out the considerations that need to be taken into account for this policy to be implemented responsibly and without compromising on the interests of retirement savers.”

Notes to Editors

Capital Formation 2: Investing Pension Contributions in Private Markets Responsibly, is the second report in a series exploring the evolving role of public and private equity markets. To access the first report in the series, please visit Private v Public Markets - Capital Formation and Implications for Investors.

CFA Institute

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organisation is a champion of ethical behaviour in investment markets and a respected source of knowledge in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow. There are more than 170,000 CFA charterholders worldwide in 162 markets. CFA Institute has nine offices worldwide and there are 158 local member societies. For more information, visit www.cfainstitute.org or follow us on Twitter at @CFAInstitute and on Facebook.com/CFAInstitute.


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