USS DC section to begin exploring alternative assets

Around 85,000 current and former academics and university staff are members of the DC section of the USS, which has now surpassed £1bn in assets. Those members who are invested in the scheme’s default offering will see their contributions allocated to illiquid assets from next month.

Investments will be managed internally by a dedicated alternatives team within USS Investment Management.

The defined benefit section of the 400,000-member hybrid scheme has made sustained forays into private markets, amassing a portfolio of around 320 infrastructure projects, properties, private debt and private equity assets. 

Among those assets already held in the £17bn portfolio include wind farms and stakes in infrastructure such as Heathrow Airport and Thames Water.

To minimise transaction costs none of the scheme's current assets will be sold down, but from February the DC section will divert new contributions towards freshly originated deals, with the USSIM team having identified assets that are particularly suited to DC.

A spokesperson said: "As the UK’s largest private pension scheme running a £17 billion private markets portfolio in-house, we are in a fairly unique position of being able to unitise these assets in order to make them available to members of the DC section. This means that we will be able to provide daily liquidity to members and that, within our liquidity framework, we will be able to manage any liquidity issues."

The USS joins only a select few large DC schemes to try to take advantage of the illiquidity premium associated with long-term assets, with many smaller schemes hamstrung by cost-cap compliance and platforms insisting on daily liquidity.

Master trust Nest has now announced three separate mandates in private debt, real estate and infrastructure, while in the single-employer space the RBS Pension Fund has split its diversified growth fund in two – with one fund providing liquidity and one free to pursue less liquid assets.

Bill Galvin, USS Group chief executive, said: “I’m delighted to be announcing this initiative today, which not only gives our members access to a range of private market assets where the USS’s approach has led the pension fund market, but also highlights the innovative ways in which we continually look to enhance our offering to members.

“We have always been clear that any DC investments must be within stringent cost boundaries that demonstrate value for money to our members and employers. This exciting development is being done at no additional cost to them, in line with our overall investment philosophy.”