Private market allocations in DC default funds could rise from current levels of 2 per cent to 4 per cent to 15 per cent to 30 per cent by 2035, according to research by Standard Life.
The report explored how consolidation and pension reforms could reshape how default funds invest. It also set out how larger schemes could build more diversified portfolios and increase exposure to private markets.
The 17 signatories to the 2025 Mansion House Accord agreed to allocate at least 10 per cent of assets across their main DC default funds to private markets by 2030, with at least 5 per of the total default-fund assets invested in UK private markets.
There are also mandation powers in the Pensions Schemes Act to force providers to hit this target if deemed necessary.
The research projected that the UK workplace DC market could be dominated by 10 to 15 larger pension schemes by 2035, each managing more than £50bn of assets.
Australian superannuation funds currently invest around 17 per cent of assets in private markets, with some growth-stage strategies allocating up to 40 per cent, while Canadian public pension funds allocate around a quarter of assets to private markets.
The Standard Life report estimates that 30 per cent to 50 per cent of private market investments could be allocated to UK opportunities, compared with around 5 per cent to 10 per cent of listed equity investments. As private market allocations grow, this could materially increase the volume of pension capital flowing into UK infrastructure, businesses and other productive assets.
Jenny Holt, product director at Standard Life, says: “Interest in private markets has grown significantly in recent years, but adoption across the workplace pensions market is developing at different speeds.
“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.”
The report also argued that greater scale, a stronger focus on value rather than cost, and reforms to support investment in illiquid assets will be necessary if schemes are to adopt these strategies at scale while maintaining a focus on delivering good pension outcomes for pension savers.
