The scope and complexity of the Financial Conduct Authority’s (FCA) proposed Value for Money framework risks undermining investments in higher-risk assets, according to the Pensions and Lifetime Savings Association (PLSA).
At its annual conference in Liverpool, the PLSA revealed its concern that the proposed returns data disclosures will discourage allocation to higher yielding but higher risk assets, which are seen as key to shifting emphasis from cost to value.
Typical holding periods for private equity and other so-called productive assets are seven to 10 years, but the FCA proposes primary returns data for comparison over one, three and five years.
Basing value assessments on such data – while not accounting for forward-looking projections – will likely therefore dis-incentivise investment in private markets, as it may present schemes as poor value over shorter timeframes.
“To be workable, the overall quantum of disclosure should be reduced and simplified,” said Joe Dabrowski, the PLSA’s deputy director of policy (pictured).
“This should include the removal of the asset allocation metrics, which are not clearly linked to value; a rationalisation of service metrics; and we also recommend data disclosures are conducted, at least initially, on a private basis, so that industry and regulators can assess which data points are useful, comparable and fair, and which are not,” he added.
In addition, the PLSA noted the red-amber-green rating system proposed within the framework promises simplicity, but the sheer number of data points to compare, as well as the number of areas will “require additional contextualisation” and could lead to a wide range of scheme performance masked within a green rating, as well as creating a significant regulatory burden, the PLSA warned.
The PLSA observed that schemes captured within the framework serve varied demographics, and the ‘score’ of some metrics proposed will reflect that membership profile more than they reflect the value of the service offered.
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