Call for pensions to be able to tap into private markets
Changing pensions rules to allow investments in private markets would benefit consumers and the country, according to the CEO of one of Ireland’s leading investment firms.
With the pension auto-enrolment scheme set to come into place at the start of next year, the Irish pension sector is set for its most significant change in decades.
However Alan Merriman, co-founder and CEO of Elkstone, wants to see a broader reform of pensions rules.
“There is an opportunity for us to be much more progressive,” he said, speaking on RTÉ’s Morning Ireland. “One of the challenges we have in Ireland is our domestic economy – investing in our domestic economy, infrastructure. We’re all conscious of the housing market, and pensions is a source of funding.”
Allowing pensions funds to tap into private investment opportunities would follow similar moves in the US and UK.
US President Donald Trump is expected to sign an executive order soon which would allow private assets to be included in 401Ks – meanwhile the British Chancellor in May announced plans to get pensions funds to invest 10% of their assets into private funds by 2030.
However there may be some reluctance to do so, given the very different nature of investing in private firms and projects as opposed to publicly-listed assets like shares and bonds.
Private investments can be riskier – especially when it comes to the likes of early stage companies – while the money is also likely to be out of reach for much longer.
However Mr Merriman says that not opening pensions pots to other types of investment is a risk of its own.
“Globally at the moment there’s a much greater concentration in public equities, so it’s actually more risky not to be diversifying, not to be allocating some of your money to private markets,” he said. “Historically institutions have done that, it’s only in recent times that retail investors are getting the opportunity to put money into private markets.”
He also said that pensions money was an ideal fit for the kind of longer-term thinking that is often required in private assets.
“Pension money is long-term investing… private markets is long-term investing. You’re getting a higher return because it’s an illiquid market, it’s a premium for that investing,” he said.
Part of the UK changes will also oblige pensions funds to allocated at least 5% of their investments towards British assets – which is seen as a way of supporting the economy and new businesses.
Mr Merriman said he would like to see this rule mimiced in Ireland – and potentially expanded upon.
“Here in Ireland we’re disadvantaged, we don’t have the deep pension industry that other countries have, we don’t have the big foundations, we don’t have teacher pensions like they have in Canada, he said. “We need to go further, we need to self-help, and one of the ways we can self-help is to encourage our own retail investors companies to invest in Ireland Inc.
“Government money – tax-payer money – is going into support this [auto-enrolment] so the Government mandating and requiring that a certain percentage gets allocated to the Irish economy makes a tonne of sense.”
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