The conversation has evolved over the last few years – shifting from “should we?” to “how do we do this well?” – and increasingly towards the role private assets could play beyond accumulation.
Yet one technical feature continues to shape how private markets behave in daily-dealt DC arrangements: the J-curve.
While familiar to private market specialists, its implications are often less clear through a DC lens. Understanding how we at L&G have approached this challenge helps frame both how far DC implementation has already come, and where it goes next.
Navigating the J-curve
In private markets, capital is typically drawn down slowly. Some fees and expenses are front-loaded, deals take time to complete, and underlying assets may be held at cost before valuations start to move in the right direction. As a result, the performance profile typically dips before rising as projects mature and begin to distribute income or generate realised gains.
For a closed-ended institutional investor – comfortable with multi-year deployment and infrequent valuations – that pattern is expected. For a daily-priced DC arrangement, it raises operational, governance and fairness questions.
Daily dealing requires all members to trade in and out at a fair price. But private market assets don’t deploy evenly or revalue instantly. If unmanaged, the natural J-curve could disadvantage members invested during the initial build-out phase, who only see a slow build-up of the market exposure while bearing a disproportionate share of the early negative costs.
Why ‘part of the journey’ isn’t good enough
Two potential related issues sit at the heart of this challenge. The first is slow deployment and the impact on cohorts. Private market strategies deploy capital gradually, sometimes over several years. In a DC environment, where members join, leave, and derisk continuously, this creates uneven exposure. Early cohorts may sit on largely undeployed capital for long periods, and if they switch strategy or transfer out before the portfolio is fully built, they may never experience the return-generating phase.
For trustees and employers, this isn’t just an investment point. It is a fairness and communication issue. Without a considered approach, timing risk is real.
The second potential issue is early performance drag and daily pricing. Setup costs for private market investments, such as legal, structuring and due diligence fees, are inevitably front-loaded.
In addition, valuation lags mean the early portfolio may not reflect the underlying economic progress of assets still at the development stage.
In a daily-priced fund, these mechanistic steps of private market investing must not translate into a predictable, initial mark-to-market loss. A DC default option cannot rely on members accepting multi-year negative performance as part of the journey. Schemes need mechanisms to avoid penalising early investors.
Rather than accept the J-curve as unavoidable, we designed our DC private markets approach to address challenges – through blended exposure, evergreen structures and robust daily-dealing discipline.
Blending vintages to smooth returns
We combine assets at different stages of the private market lifecycle. By blending newer commitments with more seasoned, income-producing assets, we aim to provide meaningful exposure from day one.
This seeks to give members representative exposure across the lifecycle of private investments, helping trustees demonstrate that value for money has been considered not just at the strategy level, but across cohorts.
For example, a scheme may hold mature infrastructure equity generating stable cash yields alongside newer commitments to development projects in real estate or renewables. The aim is a more stable aggregated performance line, even while new assets are being built.
Using evergreen structures to address deployment delays
Using evergreen funds, we were also able to provide blended exposure across different stages of the private market lifecycle, including more seasoned, income-generating assets from day one.
Through this structure we sought faster deployment and immediate access to diversified pools of assets, avoiding the stop-start build-up associated with reliance on closed-ended vintages alone.
More specialist or opportunistic exposures can then be layered in gradually once a core allocation is established. This aims to avoid large cash balances waiting to be invested.
Ongoing journey
As private market allocations in DC reach scale, the investment approach may become more granular. Larger programmes, like ours, then allow schemes to introduce more targeted exposures, such as co-investments or sector-focused strategies, without distorting pricing or liquidity. At the same time, reliance on evergreen structures can reduce as programmes mature. An ongoing ladder of commitments across vintages may serve to naturally dampen the J-curve over time while seeking to bring greater diversification across economic cycles.
Beyond accumulation: The role of private assets in retirement
Today, most DC members still cash out relatively early, creating a need for liquidity and a focus on short-term capital preservation, ideally alongside some inflation sensitivity. That requirement shapes the types of private assets that can play a role in retirement today.
For many years, this has meant a focus on shorter duration private credit, alongside less liquid alternative credit exposures such as insurance-linked securities and asset-backed securities. Limited price inflation (LPI) property has also played a role.
As more members rely on their DC savings to support longer-term retirement income, portfolio construction will need to evolve accordingly. Monitoring those shifts closely will be key.
In that future world, certain private assets – particularly real assets such as infrastructure and real estate – offer the potential for inflation-aware or inflation-linked income streams tied to long-term economic activity. They are not substitutes for guaranteed income, but they may contribute to portfolios in ways that could help manage purchasing power risk over extended retirements.
Managing the assets, not just scale
Looking ahead, the opportunity lies in exploring how mature private asset portfolios can support more
regular distributions, interact with DC liquidity needs and sit alongside traditional retirement solutions within frameworks that prioritise flexibility and member choice.
As scale increases, so too does responsibility. We have moved out of the ramp-up period and want to use the large scale that we have achieved for the benefit of our members. Our focus now is on deploying capital thoughtfully, broadening diversification where we believe it genuinely adds value — including selective exposure to private equity or digital infrastructure — and seeking to ensure private markets continue to deliver fair, consistent outcomes for members as strategies mature.
The direction of travel is clear to us: private markets will continue to feature more prominently in DC. How schemes manage the J-curve — and how they adapt as member needs evolve — will determine whether that exposure truly delivers what DC savers need, consistently and fairly.
Find out more about our private markets offering at: am.landg.com/dcprivatemarkets
