What are the key considerations for schemes integrating private markets into default strategies?
DC investors deserve access to the full investment universe, including opportunities in private markets that have traditionally only been accessible to institutional investors. Structural changes are now making this possible in the UK for the first time. Much of the debate to date has focused on why schemes should include private markets — but as momentum builds, it is increasingly important to focus on how to do this effectively.
Private markets bring higher costs, longer holding periods and illiquidity. Schemes need to understand how these assets fit into wider default strategies to help them deliver on the overall objective of producing better long-term returns for members.
What is the best way to address the governance challenges around private markets?
Private markets are being introduced through default funds, rather than self-select options. The market’s still developing its governance frameworks, and doing this in the right way matters. If complexity leads to poor performance, we risk discouraging schemes just as adoption gathers pace.
BlackRock has a long history of running DC capital, through master trust and single-employer schemes. Through this we’ve understood the importance of education and taking time to explain the context of different investment decisions to trustees, consultants and scheme providers. This includes how private markets differ from traditional asset classes,
in terms of liquidity, valuation and cost structures. These require a different mindset and approach, and governance must address these issues.
How do you communicate the challenges around private market investing?
For us the focus has been to shift the narrative away from Government compulsion and Mansion House reforms. It’s about showing employers and members that private markets may improve outcomes, as we’ve seen in the DB world.
We now provide monthly updates to DC investors, highlighting recent transactions, how they fit into portfolios, and why they’re beneficial. This is subject to change in the future. It’s a move away from quarterly statements towards a richer, more engaging dialogue. Workshops with scheme providers and advisers also help build a better understanding of the issues and underlying investments. And transparency on costs is absolutely vital. We want to be completely upfront about the higher costs involved, and have these clearly outlined from the outset, not buried in the small print. Being upfront builds trust and guards against unwelcome surprises later on.
How important is manager selection for clients?
This is a critical factor. Private markets are very different from listed equities, where many managers offer low-cost index funds that broadly mirror the market. The dispersion of returns is much wider within private markets, so access to the best managers is a real differentiator. It’s also important to remember ‘private markets’ cover a range of asset classes, with distinct risk and return profiles, and a different dispersal of returns, so there needs to be flexibility when it comes to manager considerations.
In areas like venture and growth equity, the persistence of returns is concentrated among a small group of around 40 top managers globally*. Unless you can access those managers, you risk mediocrity. That’s why we’ve designed our DC private markets solutions to use an open-architecture approach. For private equity and infrastructure, we combine internal capabilities with external manager partnerships and co-investments. This approach gives us access to opportunities sourced by third parties, without being constrained to investing in external funds. Across our platform, we currently have relationships with 750 third-party managers, allowing us to diversify while keeping costs competitive for members. But in other areas like private credit we believe a more in-house approach works best. The dispersion of outcomes is smaller, but control and risk management are crucial. When challenges arise, you want to be in the driver’s seat on restructuring or recovery. This is where scale and experience count.
What operational and risk management capability should DC schemes demand from asset managers?
Here the key is integration. Too often private markets are treated as a siloed sleeve, separate from the rest of the default portfolio. This is a missed opportunity — and a risk. Private assets should be part of the same risk and return conversation as public markets. At BlackRock we aim to look at risk factors, liquidity profile, and allocations to underlying themes across the entire portfolio, to ensure consistency across both liquid and illiquid exposures. If an investment theme such as AI were to unwind, you wouldn’t want exposure to be duplicated and potentially magnified across public and private portfolios. Managing exposure across a default can create more diversified and resilient portfolios, and better member outcomes.
Ultimately, operational excellence is about scale, transparency and communication. Managers must have the infrastructure to report meaningfully, monitor risk continuously, and integrate private markets into the overall strategy — not bolt them on as an afterthought.
Source: BlackRock, as at 30 September 2025.
For professional clients only. Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
* Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
