Phoenix CIS has supported the Schroders Retirement Benefits Scheme (SRBS) to incorporate Long-Term Asset Funds (LTAFs) within its DC scheme default, enabling members to invest in climate and social impact themes that also have the potential to boost pension pots over the long-term.
Read our latest case study to find out more.
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Background
Following a review of its DC default strategy in summer 2024, the trustees of SRBS recognised that an allocation to private market assets would provide greater diversification benefits for members, while offering the potential for higher investment returns over the long-term.
Long-Term Asset Funds, which had recently been introduced to widen access to private assets for UK institutional investors, provided an efficient means for DC schemes to do this. And the Schroders Capital Climate+ LTAF – the first LTAF to receive regulatory approval – also aligned to the scheme’s sustainability objectives, ensuring money could be invested in solutions to address key climate and social challenges.
A decision was taken to incorporate the Climate+ LTAF within the SRBS default strategy, and the trustees approached Phoenix CIS, as their investment platform provider, to deliver this change for their members.
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Challenge
While private market investments are, by nature, less liquid than public markets, LTAFs have been designed to provide liquidity for investors who need to invest or redeem on an ongoing basis. This means that trading is permitted at set intervals with a minimum notice period of 90 days, with set redemption limits. Lock-up periods might also apply in the early years of a fund.
The challenge for SRBS was to introduce the Climate+ LTAF while managing daily liquidity and pricing for the scheme’s c. 5,100 members - ensuring new contributions could be readily invested and savings accessed by members as required.
Withdrawal limits and notification periods for the LTAF also had to be considered, with a requirement for new operational processes to manage the non-standard dealing and pricing cycles.
It was essential to build a solution that leveraged the benefits of investing in less liquid private market assets while maintaining the liquidity required for a large DC scheme.
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Solution
Working closely with SRBS, Phoenix CIS developed a platform solution to incorporate the Schroders Capital Climate+ LTAF within the scheme’s default strategy.
Leveraging blended fund capability
Building on existing blended fund capability, we launched the Climate+ LTAF as part of a new blended fund solution for SRBS, which includes both liquid and illiquid elements.
This means that SRBS initially invests 100% of member contributions into the liquid assets held within the blend, with allocations reviewed quarterly and rebalancing occurring every six months - at the appropriate trading points - to enable a 20% allocation to the LTAF.
When disinvestments are required, these can be made from the liquid elements of the blend.
Leveraging operational expertise
The extended 90-day notification period for the LTAF means that trading has to be managed separately to the rest of the funds held within the scheme’s default, which have daily dealing and pricing cycles.
Using the expertise of our investment operations team, we developed new operational processes to manage these non-standard dealing requirements for the LTAF. For example:
- Daily cashflow rebalancing for the LTAF is turned off, so that all cash flow in and out is pointed to other, more liquid components of the blended fund.
- Asset allocations are reviewed quarterly, according to set triggers and thresholds as agreed with the scheme trustees, so no further approvals are required.
- Rebalancing occurs every 6 months if tolerances are breached, with trading in the LTAF occurring outside of day-to-day dealing to ensure LTAF trading requirements are met.
- LTAFs are quarterly priced, although we also use the monthly indicative NAV that is published 24 days after each month end.
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Results
- Changes to the scheme’s default were delivered within the agreed timescales, with assets transitioned during the blackout period required by the Third-Party Administrator in order to minimise the impact on members.
- The 70% of members who are in the scheme’s default now have access to the Climate+ LTAF, which offers strong diversification across asset classes and geography and the potential to enhance returns over the long-term.
- The scheme’s investment strategy is now better aligned to its sustainability objectives, contributing positively to climate and social impact and supporting the transition to net zero economies.
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“Working with Phoenix CIS to launch the Climate+ LTAF has been a seamless experience – their operational expertise ensured every step of the transition was executed smoothly, with minimal disruption to our processes.
“What really stood out was their collaborative approach and genuine commitment to partnership. Thanks to their support, members now benefit from access to private market assets through the LTAF – an important step towards delivering sustainable, long-term value.”
Peter Strudwick, Pensions Manager, Schroders
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“We were delighted to support the Schroders Retirement Benefits Scheme to introduce the Climate+ LTAF into its default investment strategy – a forward-thinking move that reflects our shared commitment to innovation and sustainability, all with a clear focus on delivering better long-term outcomes for members.”
Jess Williams, Head of Corporate Investment Services, Phoenix CIS