Open architecture, scale and a distinctly UK focus are essential if DC schemes are to make a success of investing in private market assets
How has Future Growth Capital come about and what is it aiming to achieve?
Schroders and Phoenix Group set up Future Growth Capital to address a key challenge – how to help UK DC pensions funds access the higher return potential of private markets efficiently. Private markets offer significant return potential, but they are also more complex and challenging to navigate – trustees and pension schemes often need specialist support.
Future Growth Capital provides the specialist expertise in areas such as asset allocation, portfolio construction, manager research, and risk management. In addition, the backing of our parent companies provides complete operational and governance assurance. Our aim at Future Growth Capital is to support pension trustees by providing them with everything they need to feel confident about their private markets investment journey.
What do you bring to the market that can’t be sourced elsewhere?
We’ve thought carefully about what may be missing in the marketplace from a trustee perspective. We have an open architecture approach, investing with a range of high-quality managers, with the ability to switch managers if needed. We feel it is reassuring for trustees to know they are not going to be locked into managers who may underperform in the future.
We’ve brought a different pricing philosophy to the market. We do not want to screen out high-quality managers by making them limbo-dance under a very low fixed fee bar, which may have consequences for performance. It’s the net return, and the probability of achieving that return, which matter most in our view, and we prefer our fees to be linked to the performance we deliver.
You have launched a bespoke UK-focused Long term Asset Fund, why is that?
There are great investment opportunities in the UK’s private markets to take advantage of. But we also wanted to empower trustees in one key area – to decide how much of their portfolio should be invested in the UK. Our sense is that while they want to outsource many areas of decision-making to a manager, trustees prefer to make the UK exposure decision themselves.
We’ve launched separate, complementary UK and Global ex-UK funds, side by side, giving trustees the ability to decide for themselves how much of each they want, and the ability to change those weightings in future, as and when they want.
How important is scale in managing private market assets for DC pension funds successfully?
Scale is important. It can take a while to ramp up and fully diversify new private market strategies, you want that period to be as short as possible. Having substantial foundation capital to invest from our parent, Phoenix, allows us to diversify our funds quickly and de-risk them for investors.
The Mansion House Accord indicates a 5 per cent UK private markets allocation. What opportunities does the UK offer and what can this do for the UK?
UK private markets are broader and deeper than often thought. When you look at the evidence, there is plenty of private markets investment activity going on in the UK, and it is a fertile ground to invest in.
From our perspective, the UK is a hub of innovation – it has more than its fair share of world-ranked universities, an active and growing spin-out industry, and is now the third-largest venture capital market in the world. Some £18bn of VC deals were transacted in 2024, and a further £30bn-£50bn of private equity, in industries that employ more than 2m people in the UK. On top of that we saw £100bn in UK infrastructure deals last year, and £50bn into UK real estate.
So, there’s no shortage of investment opportunity in the UK’s private markets and they offer attractive risk-adjusted returns. International investors are already taking advantage, and we think it’s time for UK
pension investors to have the opportunity to do so as well.
If you had to sum it up, what do UK private markets offer DC members?
Better retirement incomes and a better UK to retire into. Over the long term, if members pension savings are one-fifth invested in managed private asset solutions, we expect to see a 20 per cent uplift in their pension pots at retirement.
That’s meaningful, and importantly, it doesn’t require people to save more, at a time when they may be finding it difficult. At the same time, they will have the deep satisfaction of knowing their savings have been used to invest in growing UK businesses, creating jobs and prosperity in their own society. That’s a well-rounded definition of a good member outcome in our view.