Ordinary Investors Should be able to Allocate up to 30pc of Pension Assets into Private Investments
In this article Elkstone CEO and Co-Founder Alan Merriman outlines how the government can make it easier for pension funds to invest in private market funds, allowing pension holders to benefit from better and needed diversification.
Irish citizens are not creating a large enough pool of capital for retirement and despite the typical pension structure being set up for long-term investments, only the most liquid investments are allowable. These long-term pension structures serve as the perfect medium to enable individuals to invest into private market investments and funds. Private markets are utilised by institutions and long-term private capital like family offices to boost their returns in the long run. It is the main capital growth allocation, yet individuals aren't allowed to access it.
The introduction of pension auto-enrolment, due to happen next year, should also include an opportunity for anyone who wants to put a slice of their savings into the kind of high-potential start-ups that can become spectacular financial successes. Over the past 50 years allocating investments to private markets, private equity and venture capital has delivered higher returns for investors so it makes a lot of sense to allow people benefit from that.
With total assets of €138bn invested in Irish pension funds by Irish individuals, we would recommend that a programme and provision is put in place to encourage Irish pension funds to invest in early-stage Irish companies. This will bring about investment of funds which would otherwise be passively invested and thereby generating employment and trading activity as the EIIS relief is designed to do.
Auto-enrolment is an opportunity to increase that pool and spread the potential benefits. Why not let individuals choose to have a sliver of their money invested in Irish start-ups?
We would recommend that consideration is given to allow up to 30% of an individual's pension fund be allocated to private market funds. To assist in the development of private markets by pension funds, change will be required to the current rules prohibiting performance fees by certain pension structures. Performance fees are commonplace in actively managed funds. An additional suggestion would be to allow pension funds which are in excess of the standard fund threshold to invest that excess in funds which are making EIIS investments without crystallizing a tax charge.
Read the full article on The Irish Independent here