DB funding level improvements prompt trustees to engage earlier with insurers about illiquid assets

Written by Adam Cadle

23/08/2023

Improvements in DB funding levels have prompted pension trustees to start engaging with an insurer earlier than expected about the best ways to manage their illiquid assets, research from Standard Life has revealed.

Illiquid assets have historically been viewed as a barrier to de-risking activity as they are more difficult for insurers to accept. Forty percent of trustees said the recent changes in the market environment have prompted them to reduce their scheme’s allocation to illiquid assets as a priority.

Various options are being considered by trustees when it comes to managing any illiquid assets held by the scheme. Two-thirds (625) are considering passing the assets to an insurer in-specie, while a third (36%) are considering using a secondary market sale. A third (34%) are considering deferring part of the BPA premium, giving them time for the illiquid assets to redeem, or more time to sell the assets, at which point the premium can be fully paid up.

Kunal Sood, managing director of defined benefit solutions and reinsurance, at Standard Life, commented: “Insurers are looking to support schemes in managing their illiquid assets in new and innovative ways to ensure schemes are able to make the most of the assets, while enabling trustees to harness the opportunities the current market has to offer. There are various options on the table to be explored. Whilst many illiquid assets aren’t desirable for insurers, there are buyers who are seeking these types of assets. A secondary market sale could be a good option for some schemes, whereby an auction process is run by a broker with the aim of selling the assets to a potential buyer. This helps solve the issue quickly, and Standard Life is happy to support schemes in facilitating these transactions.

“What is important to note is that each scheme will have different needs, which underlines the importance of tailored, bespoke approaches to achieving the best outcomes when it comes to managing any illiquid holdings.”

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