Barriers to DC investment in private markets 'eroding'

Defined contribution (DC) schemes are becoming more comfortable investing in private markets, with 42 per cent of large DC schemes and master trusts having already made an allocation in this area, according to research from the DC Investment Forum (DCIF).

The survey also found that a further 28 per cent of large DC schemes and master trusts are planning to make an allocation to private markets in the near future.

These allocations were spread across the full universe of private market opportunities, although private equity and private debt proved to be the most popular asset classes, with infrastructure and impact solutions close behind.

Improving risk adjusted returns for members was the main reason schemes wanted to invest in private markets, with 100 per cent of respondents identifying this as a very important motivation, while a further 69 per cent saw improved diversification as the main benefit.

Long-Term Asset Funds (LTAFs) were the vehicle of choice for more than half (61 per cent), although some of the very large master trusts suggested that they see LTAFs as a "step along the road", instead targeting co-investment as their ultimate goal.

Despite the "encouraging" overall picture, the research found that some barriers to investing in private markets still exist, particularly high fees, cited by 68 per cent of respondents, and a lack of available products, cited by 58 per cent of schemes.

However, the DCIF argued that the fact that so many large pension schemes are already investing in private markets shows that neither barrier is insurmountable.

It also suggested that while private markets tend to be a relatively more costly area of the investment universe to access, because of the additional research necessary to identify the right opportunities, engage with underlying companies and monitor performance, the returns and additional diversification benefits should justify the higher cost.

Commenting on the findings, DCIF chair, Mark Austin, said: “This research is really encouraging, showing us that the barriers to accessing private markets are eroding.

“As DC schemes grow and consolidate, access routes are likely to mature and converge, giving more members an opportunity to benefit from a wider range of asset classes.

“That said, the research shows that we still have some way to go to overcome the barriers schemes experience when investing in private markets. In order to overcome these barriers, it would be beneficial for the industry and pension schemes to come together and collaborate on what best practice looks like moving forward.”



Share Story:

Recent Stories


Exploring the role of real assets
Pensions Age Editor-in-Chief, Francesca Fabrizi, joins Nuveen Real Assets Head of Strategic Insights, Abigail Dean, to explore the role real assets can potentially play in pension fund portfolios

AI and the future of UK pensions
Laura Blows speaks to Scottish Widows’ pensions expert Robert Cochran, about the growing role of artificial intelligence (AI) in the UK pensions industry

Supporting retirement decisions
Laura Blows discusses retirement saving levels in the UK, and the support required for members, trustees and employers, with WEALTH at Work director, Jonathan Watts-Lay

Pension risk transfer partnership
Podcast: From pension pot to flexible income for life

Advertisement Advertisement