Almost three-quarters of UK defined contributions (DC) pension schemes are planning to access private markets through long-term asset funds (LTAFs), according to research from Schroders and Longview Networks.
With a push from government and regulators for DC schemes to invest more in private markets, schemes are continuing to evolve their investment strategies.
This includes legislation such as the Pension Schemes Bill and voluntary frameworks such as the Mansion House Accord, which calls for 10% of a default fund to be invested in private markets, with 5% of that specifically directed to UK private markets, by 2030.
The survey is based on 56 responses from master and single trust DC schemes, representing more than £198bn (€228bn) in assets under management and more than 70% of Mansion House Accord master trust signatories.
It found that 74% of respondents expect to increase private-market allocations for growth-phase strategies, while 59% anticipate boosting exposure for retirement-phase portfolios.
More than half (53%) of respondents increased their private equity allocation at their most recent investment review, and risk-adjusted returns were cited as the most significant drivers of private-market investment decisions.
According to the survey, more than a quarter of DC schemes also expect to significantly increase their UK private markets exposure, with 25-49% of their total private markets allocation invested in domestic private-markets solutions.
Under half (40%) of respondents reported that they had increased their exposure to UK infrastructure at their most recent review, with 35% boosting their allocations to private debt. A large majority of respondents (82%) described renewable infrastructure as the most attractive net-zero investment opportunity.
Schroders said that as demand for private market investment is rising, so is the supply. Its survey showed that 69% of respondents have reported LTAFs as the structure of choice for private market allocation, compared with 18% who chose a Société d’investissement à capital variable (a publicly traded open-end investment fund structure, or SICAV) fund, and 10% who chose European long-term investment funds (ELTIFs).
The majority of master trusts have now launched their own LTAF to facilitate their allocation to the sector, while others have confirmed they are working with their advisers to incorporate illiquid assets – including private equity and private credit – into the default strategy.
Ryan Taylor, head of UK DC clients at Schroders, said: “The DC landscape is changing rapidly, and the Pension Schemes Bill and Mansion House Accord will reshape the investment landscape. Our inaugural DC Investment Survey looks at these seismic shifts driving the industry and shaping DC investment.
“The biggest winner would appear to be LTAFs, with nearly three in four DC schemes planning to structure their private market investments through the investment vehicle. At the same time, more than a quarter plan UK private market allocations, significantly above those encouraged by the Mansion House Accord, suggesting growing momentum behind this investment trend.”
