The OECD has warned pension funds to be careful about liquidity risks relating to illiquid assets such as infrastructure, private equity and real estate – as interest rates rise.

The UK pension crisis helped regulators and market participants better notice liquidity risk in pension funds.

The OECD also noted that small- and medium-sized pension funds are likely to not have large enough teams of specialists to conduct sufficiently rigorous due diligence on alternative investments.

This may increase demand for securitised forms of alternative asset investments (at senior and subordinated levels) – which allow pension funds to still benefit from alternative asset risk, with a higher level of liquidity and less direct due diligence than direct investments.