Phoenix Corporate Investment Services have implemented a new investment solution for leading workplace pension provider TPT Retirement Solutions, giving members access to the potential growth opportunities afforded by private equity.
Recognising the potential returns from investing in privately held businesses, TPT were keen to explore a solution through the provider’s Defined Contribution (DC) Master Trust default target date funds (TDFs) that would overcome the challenge of investing in an illiquid asset class.
Working with TPT and AllianceBernstein, who manage TPT’s default target date funds, we were able to develop and implement an approach that met the investment objective while still providing daily liquidity to members.
Background and challenges
At Phoenix CIS we have successfully operated target date funds on our platform since 2013, investing in a broad range of mainstream asset classes such as equities and bonds.
In order to gain access to private equity, AllianceBernstein decided on a range of globally listed investment trusts, which in turn invest in unquoted companies.
We were therefore asked to develop a solution on our investment platform that would enable Alliance Bernstein to maintain control over the asset allocation and any trades made into the private equity investment trusts.
And with TPT being a significant Master Trust where member trades are received on a daily basis, the management of cash flow and ensuring sufficient liquidity were key requirements of the solution.
Our solution
To facilitate daily trades for members, we blended the private equity holdings with a Global Small Cap Index Tracker Fund. Any investments, disinvestments and switches are placed in the Global Small Cap fund initially. This allows for trades into and out of the investment trusts to be made on an ad hoc basis and at the fund manager’s discretion.
By trading less frequently, transaction costs are reduced and AllianceBernstein are not a forced seller of the investment trusts when members disinvest or switch out of a TDF.
Our investment platform derives a daily price for both the Global Small Cap fund and the private equity holdings of the target date fund solution, which in turn is used to establish the overall unit price of each TDF.
Project implementation
During the implementation phase, we completed a number of steps. These included:
- Ensuring accurate price feeds for the private equity investment trusts and determining valuation points for pricing purposes.
- Ensuring consistency of pricing and currency exchange rates for globally listed assets.
- Setting up a new account with the custodian.
- Updating the investment management agreement and service level agreement with the fund manager to reflect the different investment vehicles being traded and associated processes.
Once operational set up was complete, we ran all the necessary testing cycles before receiving client investments into the fund.
Results
These changes were made seamlessly for members, with no requirement for a blackout period.
The target date funds continue to operate as normal, but members now have access to an illiquid asset class offering potential investment growth opportunities by investing in privately held businesses.
The target date fund structure means that investments continue to be appropriate for members according to their age and proximity to retirement.
The same investment model and investment vehicles have since been adopted to provide members with a range of sustainable investment options as well.
Feedback from our client
“Phoenix CIS have always put our requirements at the forefront of any development. They demonstrated a clear understanding of our investment objectives, and were able to develop an innovative solution to meet our needs.
“The flexibility of their platform has enabled us to diversify our investment portfolio, giving members access to alternative assets and potentially improving investment outcomes in the long term.”
Philip Smith, DC Director, TPT Retirement Solutions
Feedback from the fund manager
“At AllianceBernstein we are always looking for ways to innovate in order to alleviate operational pressure points and improve workflow. The Phoenix CIS team and platform appealed to us as it offered us the flexibility and capability to develop a solution using closed-ended funds, while still allowing us to determine the asset allocation for each target date fund (TDF).
“By working with Phoenix CIS to introduce private equity onto their platform, we have been able to deliver our offering to clients and, most importantly, their scheme members. It also allows us to focus on the day to day running of these funds.”
Ross Langley, VP - UK DC Operations and Delivery, AllianceBernstein