Master trust providers are increasingly moving towards a single-default approach and are ramping up allocation to illiquid assets following the Mansion House Accord, according to the latest market report from Isio.
However Isio found that most schemes have yet to clearly define how they would invest at least 5 per cent of default strategies into UK illiquids, particularly venture capital and private equity, raising questions as tohow far this will support UK economic growth , a key driver behind this Accord.
Isio’s report looks at 13 DC master trusts – covering 18 default strategies. If found that the average target allocation to illiquid in trusts following single default strategy had risen from 10 to 12 per cent in the last year.
However, there were gar higher target allocations where master trusts were adopting a multi-default strategy – with a core and an ‘additional’ (or premium) default. Isio found target allocations for these additional that defaults were 21 per cent allocation on average, up from 18 per cent last year.
Isio’s research found that while providers were broadly on track to meet the Accord’s target of allocating 10 per cent of default funds to private markets, far fewer currently have a clear route to achieving the ambition of directing 5 per cent specifically towards UK assets.
The report said most providers continue to favour globally diversified private market portfolios, rather than UK-concentrated approaches — with UK allocations currently most commonly achieved through property and infrastructure mandates, rather than venture capital exposure.
The study also highlights changes in how providers are using illiquid assets across the retirement glide path. More schemes are now retaining allocations into the pre-retirement phase, with private debt becoming increasingly prominent later in members’ investment journeys due to its more defensive characteristics.
Across growth-phase allocations, private equity remains the most widely used illiquid asset class, featuring in 16 of the 18 default strategies analysed, while infrastructure, private debt and real estate all continue to play significant diversification roles.
However, Isio warns the industry risks becoming overly focused on allocation targets rather than implementation quality. The report argues that while illiquid assets have the potential to improve long-term member outcomes, poor implementation, weak manager selection, inadequate governance and operational complexity could ultimately damage outcomes if not managed carefully.
Isio partner George Fowler says: “Over the last twelve 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. The real question now is whether these allocations are being implemented in a way that genuinely improves outcomes for members.
“Providers are becoming more ambitious in the size and breadth of their allocations, and we are increasingly seeing illiquid assets used throughout the retirement glidepath rather than just in the growth phase. But bigger allocations also raise the stakes. At these levels, implementation quality becomes critical.
“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.
“On Mansion House specifically, providers appear broadly comfortable with the 10 per cent private markets ambition, but the industry is still some way from having a clear consensus on how best to achieve the 5% UK allocation target without creating concentration risks or compromising diversification.”
