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Private markets could make up 30% of DC defaults by 2035 – Standard Life

It projected that the UK workplace DC market could be led by 10 to 15 larger pension schemes by 2035, each managing more than £50bn.

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Private market allocations in defined contribution (DC) default funds could rise from between 2% and 4% to between 15% and 30% by 2035, data from Standard Life and WPI Economics found.

The report, From Scale to Impact: A Blueprint for the Future DC Pensions Market, examined how consolidation and pension reforms could affect default fund investments.

It projected that the UK workplace DC market could be led by 10 to 15 larger pension schemes by 2035, each managing more than £50bn.

Future default funds could invest across private equity, venture capital, private credit, infrastructure and real assets.

Private equity and venture capital could account for between 30% and 50% of private market allocations.

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Private credit could make up between 20% and 40%, with infrastructure and real assets accounting for a further 20% to 40%.

The report estimated that between 30% and 50% of private market investments could be allocated to UK opportunities, compared with between 5% and 10% of listed equity investments.

This could result in between £40bn and £200bn of DC pension assets being invested in UK private markets by 2035.

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Today’s master trusts had an estimated £2bn to £3bn invested in private markets.

Jenny Holt, product director at Standard Life, said: “Interest in private markets has grown significantly in recent years, but adoption across the workplace pensions market is developing at different speeds.

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“This research explores how the DC market could evolve over the longer term if schemes continue to consolidate and gain greater scale. 

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“In that environment, larger schemes may be better placed to access a broader range of investment opportunities and build more diversified portfolios.”

Holt added: “Ultimately, the focus should not be on allocation targets alone, but on the value private market investments can deliver for members. 

“Different schemes are likely to take different approaches as the market develops, but any investment strategy should remain focused on improving member outcomes, delivering value for money and being supported by strong governance and a clear investment rationale.”

Joe Ahern, director of policy at WPI Economics, said: “Scale changes what pension schemes can invest in and how they invest. 

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“Larger schemes are better positioned to access a wider range of opportunities, build specialist expertise and construct more diversified portfolios across different private market asset classes.

“The challenge now is ensuring the wider regulatory and commercial environment supports schemes in accessing those opportunities while maintaining a relentless focus on delivering value for savers.”

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