UK defined contribution (DC) master trusts are increasing allocations to illiquid assets as attention shifts from private markets ambitions towards implementation challenges, according to new research from Isio.
The consultancy’s report, based on analysis of 13 major UK DC master trust providers and 18 default strategies, found schemes are increasingly adopting single-default structures incorporating material illiquid allocations, rather than operating separate “core” and “premium” defaults.
Average target allocations to illiquid assets in single-default strategies increased to 12% from 10%, while allocations in additional defaults rose to 21% from 18%, according to the report.
The research builds on earlier findings published by Isio in 2024 and 2025, showing major UK master trusts progressively incorporating illiquid assets into default arrangements following the Mansion House reforms and growing industry focus on value rather than cost.
Private equity remained the dominant illiquid asset class, featuring in 16 of the 18 default strategies analysed, while infrastructure, private debt and property also played significant diversification roles.
The report said providers were increasingly extending illiquid allocations beyond the growth phase and into pre-retirement stages of the glidepath, where private debt was becoming more prominent because of its defensive and income-generating characteristics.
Isio added that while providers broadly appeared comfortable with the Mansion House Accord ambition of allocating 10% of DC default funds to private markets, the industry remained less certain about achieving the target of directing 5% specifically towards UK assets.
According to the consultancy, providers continued to favour globally diversified private markets portfolios, with UK allocations currently achieved mainly through infrastructure and property mandates rather than venture capital investments.
The findings come as UK master trusts continue to grow rapidly through consolidation and scale. This week, Legal & General said its main default fund had reached £25bn in assets, while Fidelity International reported assets in its FutureWise default strategy had also grown to £25bn amid broader industry efforts to expand private markets exposure.
George Fowler, partner at Isio, said: “Over the last 12 months, the conversation around DC exposure to illiquids has changed fundamentally. The debate is no longer about whether private markets belong in DC defaults — most providers have already crossed that bridge.”
He added: “There is still an assumption in parts of the market that simply allocating to private markets will automatically improve member outcomes. We do not think it is that simple.
“The quality of manager selection, liquidity management, portfolio construction and governance will ultimately determine whether these strategies succeed over the long term.”
