Defined contribution (DC) master trusts have increased their target allocations to illiquid assets a year on from the Mansion House Accord, new research from Isio has found.

The research report – analysing 13 UK DC master trust providers and 18 default strategies – found that master trusts were increasingly adopting a single-default approach incorporating material allocations to illiquid assets.

It revealed that, in the growth phase, average allocations to illiquids within single defaults had risen from 10 per cent to 12 per cent over the past 12 months, and within additional defaults they had increased from 18 per cent to 21 per cent.

The study also highlighted that more schemes were retaining allocations into the pre-retirement phase, with private debt becoming increasingly prominent later in members’ investment journeys due to its more defensive characteristics.

Across growth-phase allocations, private equity remained the most widely used illiquid asset class, featuring in 16 of the 18 default strategies analysed, while infrastructure, private debt and real estate all continue to play significant diversification roles.

Isio partner, George Fowler, said the conversation around DC exposure to illiquids has changed fundamentally over the past year: “The debate is no longer about whether private markets belong in DC defaults – most providers have already crossed that bridge. The real question now is whether these allocations are being implemented in a way that genuinely improves outcomes for members.

“Providers are becoming more ambitious in the size and breadth of their allocations, and we are increasingly seeing illiquid assets used throughout the retirement glidepath rather than just in the growth phase. But bigger allocations also raise the stakes. At these levels, implementation quality becomes critical."

The research also found that while providers were broadly on track to meet the Mansion House Accord’s target of allocating 10 per cent of default funds to private markets, “the industry is still some way from having a clear consensus on how best to achieve the 5 per cent UK allocation target without creating concentration risks or compromising diversification,” according to Fowler.

Fowler argued that while illiquid assets have the potential to improve long-term member outcomes, poor implementation, weak manager selection, inadequate governance and operational complexity could ultimately damage outcomes if not managed carefully.

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