Mansion House Compact: spotlight on Aon

According to Jo Sharples, chief investment officer for Aon’s DC solutions, joining the Mansion House Compact was a “continuation of a broader direction of travel” for the firm.

She said: “Over the last few years, we’ve seen increased interest in [private equity] and we started to see it actually becoming possible for the first time now that there’s been a few schemes who have done it.”

Sharples pointed out that the market is “opening up” and there are more, better, products available. “With that, we took a view to making an allocation with one of our defaults. We thought that long term if we can get it in, it is really good for our members and good for returns.”

The 5% private equity target dictated by the compact will form part of a wider private assets strategy for Aon, Sharples disclosed, noting that private equity sits at the “higher risk, higher return end”, and it has to be a part of a broader strategy.

She said: “As part of this journey I can see, particularly taking to account client feedback, you have to get clients comfortable with the fact that this is a good idea, that it will work and it is worth paying a little bit more for.”

Sharples added that once “[you] dip your toes” in the private equity space and it works producing good returns, it will open up for “much bigger allocations and less scepticism around fees”.

Aon already has some exposure to private markets in the form of direct property in its default fund, which Sharples said delivered “some good returns” but has come under pressure recently due to market conditions and the gating of property funds in the UK.

She said: “It’s been a good learning experience for the industry to actually have to deal with that and work out the good and bad things to take from there […] when you do a bigger allocation because you will get funds that will be gated and there will be times when you can’t get your money out.”

For private equity allocation, Sharples said it will be a case of building up Aon’s allocation to private markets and then over time looking to introduce private equity.

At the moment, Aon is looking at private debt, infrastructure, property and also insurance linked securities. She said they come with “different liquidity profiles”, adding that debt and insurance-linked securities are at a “much more liquid end of the spectrum”, meaning thre is a natural cash flow.

She said: “We are looking at all of those and effectively ranking them to see which ones are going to work best. We’ve got a list of probably 30 managers who are keen to do something and it’s a case of which ones are going to be the better ones.”

But Sharples said there is a need for a private equity-only vehicle. “At the moment if you want a private equity-only vehicle, you don’t have much choice.”

Sharples said she is not aware of any such vehicles and how long it would take for any to surface, but “that’s the sort of innovation that we need to see”.

And while the British Business Bank is developing a vehicle at the moment, Sharples said that it is not something that is ready to take the money now.

“That could easily take a few years, in the interim that’s when you start to build up a notion and test some of the operational stuff around [private equity investing] and build some track record. 

She added that Aon is currently looking at picking specialist managers for each area of private markets but it will likely be 12 to 18 months before it can make a first allocation to private assets.

“It might include productive finance but not necessarily private equity. Private equity will follow once we’ve got potential vehicles. It will take some time to get up and working,” she noted.

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