Key Takeaways
- • Aon argues that liquid alternative assets can enhance UK pension scheme resilience amid market volatility and elevated equity and credit valuations, while schemes remain overweight in illiquid assets following the 2022 gilts crisis.
- • Liquid diversifiers—strategies investing across multiple asset classes and styles in accessible, liquid formats—can mitigate equity and credit market risks while delivering uncorrelated absolute returns, according to Aon investment partner Guy Saintfiet.
- • Pension schemes with near-term buyout horizons benefit most from liquid alternatives' steady return profiles, as these strategies support diversification and portfolio resilience during transition phases.
- • Implementation of liquid alternatives presents a significant barrier for smaller institutional investors due to expertise and resource requirements; outsourcing is identified as the pragmatic approach for most schemes.
Summary
Aon has positioned liquid alternative assets as a solution for UK pension schemes seeking to fortify portfolio resilience against current market headwinds. The consulting firm notes that heightened market volatility coupled with expensive valuations in equity and credit markets have created financial stress for institutional investors, particularly defined benefit schemes that have become overweight in illiquid assets since the 2022 gilts crisis.
Guy Saintfiet, Aon's investment partner, emphasized that liquid diversifiers—alternative strategies deployed across multiple asset classes and investment styles within publicly accessible and liquid structures—offer a pathway to genuine portfolio diversification. These strategies are designed to mitigate equity and credit market risks while generating consistent, uncorrelated absolute returns. Saintfiet stressed the importance of clarity around investment objectives when allocating to liquid alternatives, noting that schemes with specific near-term goals, such as those planning insurance-based buyouts, can derive particular value from the steady return profiles these strategies provide.
The liquidity advantage is especially relevant for schemes in transition phases, where portfolio flexibility is operationally critical. However, Aon acknowledges that implementing liquid alternatives poses a challenge for institutional investors outside the largest tier, as effective deployment requires substantial expertise and infrastructure investment. Consequently, the firm recommends that most schemes outsource implementation rather than attempt in-house management of these complex strategies.
Guy Saintfiet, Aon's investment partner, emphasized that liquid diversifiers—alternative strategies deployed across multiple asset classes and investment styles within publicly accessible and liquid structures—offer a pathway to genuine portfolio diversification. These strategies are designed to mitigate equity and credit market risks while generating consistent, uncorrelated absolute returns. Saintfiet stressed the importance of clarity around investment objectives when allocating to liquid alternatives, noting that schemes with specific near-term goals, such as those planning insurance-based buyouts, can derive particular value from the steady return profiles these strategies provide.
The liquidity advantage is especially relevant for schemes in transition phases, where portfolio flexibility is operationally critical. However, Aon acknowledges that implementing liquid alternatives poses a challenge for institutional investors outside the largest tier, as effective deployment requires substantial expertise and infrastructure investment. Consequently, the firm recommends that most schemes outsource implementation rather than attempt in-house management of these complex strategies.
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