From private markets to prosperity: Mercer’s take on the UK retirement challenge

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The UK faces a serious retirement challenge. Nearly half of working-age people aren’t saving enough for their future¹, putting millions at risk of financial insecurity in retirement. While encouraging higher contributions and improving financial education remain important, pension schemes must also explore smarter investment strategies to help members grow their savings over the long term. 

One promising solution is private markets. Once seen as too complex, or too illiquid, for defined contribution (DC) schemes, new types of investment funds are now making it easier to invest in things like property and infrastructure whilst still being able to access savings.

The limits of public markets

Today’s public stock markets are dominated by just seven tech giants: Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Nvidia. Together, these “Magnificent Seven” account for about 20% of the global stock market.² Their success is closely linked to artificial intelligence (AI), which they not only benefit from but also invest heavily in.

In 2024 alone, these companies poured nearly $25 billion into venture capital deals, more than the entire UK’s annual venture capital investment.³ They’re backing new technologies, building data centres, and investing in the infrastructure that powers AI. Their influence extends far beyond just public stocks, shaping innovation across both public and private markets.

But relying solely on public markets is increasingly risky. The concentration in a handful of firms limits diversification and exposes portfolios to sector-specific shocks.

The hidden opportunity

Beneath the surface of public markets lies a vast and growing private markets ecosystem. Imagine an iceberg: what you see above the water, the public companies listed on stock exchanges, is only a small fraction of the whole. For example, in the US, 87% of firms with revenue greater than $100m are private.⁴ Nearly half of the UK’s largest companies (those with revenues over £5 billion) are now owned by private capital investors.⁵

Private markets are expanding rapidly. Companies are staying private longer thanks to more flexible financing options and increasing regulatory hurdles for public listings. 

Globally, private tech companies like Anthropic, Coreweave, Databricks, and OpenAI, sometimes called the “Private Magnificent Seven”, have seen their valuations grow 40% in just six months, outpacing their public peers.⁶

Making private markets accessible for DC schemes

Historically, private markets were difficult for DC schemes to access due to illiquidity and operational complexity. But that’s changing. Funds like Long-Term Asset Funds (LTAFs), which offer some flexibility in when you can access your money, are making it easier to invest in private markets.

Mercer has partnered with Schroders to launch the Schroders Mercer Private Assets Growth Long-Term Asset Fund (LTAF), designed specifically to help DC schemes like the Mercer Master Trust and now:pensions Master Trust invest efficiently in private markets. This fund balances the long-term growth potential of private markets with the flexibility members need to access their money.

Ben Lewis, Head of Investment Proposition at Mercer, explains “While the UK DC market is still early in its private markets journey, we’ve drawn valuable insights from our experience in Australia’s superannuation system. Our LTAF launch is a key step towards delivering stronger, more resilient outcomes by unlocking long-term value across illiquid assets like infrastructure and private equity. Together with now:pensions we are not only supporting members’ retirement goals but also the sustainable growth of the UK economy.”

Embrace private markets, but do it wisely 

However, unlocking these opportunities requires more than just access to private markets. As AI reshapes the economy, risks and opportunities increasingly overlap across asset classes and regions. This means pension schemes may unknowingly hold similar exposures in both public and private investments. For example, a scheme might reduce its public tech stock holdings to manage risk but still have significant exposure to AI-driven companies through private equity or infrastructure investments. 

In their recent report, “Private Markets: Balancing opportunities and resilience,” Mercer argues that a more holistic, total portfolio approach is required to navigate these “hidden” or “stealth” concentration risks, which can leave portfolios vulnerable to the same economic or technological shocks across multiple areas. This approach helps pension schemes manage evolving risks and seize opportunities across both public and private markets. By embracing private markets within a total portfolio framework, pension schemes can better address the retirement savings challenge and build a more secure future for their members.

To read more articles from Mercer visit the content hub on Corporate Adviser – here.

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^{1 Analysis of Future Pension Incomes 2025 – GOV.UK
2 Bloomberg, MSCI, Nov 21 25
3 Venture capital investment in British startups and scaleups reaches £9bn in 2024
4 Many More Private Firms in the US – Apollo Academy
5 UK Public and Private Markets report.pdf
6 Wall Street’s Magnificent Seven lose their shine}