The past three years have marked a significant shift in investment strategy design for DC pension schemes.
Public equities have historically been, and remain, the primary engine of long-term growth for members. However, the advent of structures such as Long-Term Asset Funds (LTAFs) has widened the range of asset classes available to DC schemes – making private markets more readily accessible to DC schemes.
This comes at an important time. Public equity markets have become increasingly concentrated – both geographically (to the US), and within that to a small number of companies exposed to similar risks. For DC schemes, this presents key challenges.
Historically, over most long-term time horizons, public equities have delivered stronger returns than other liquid asset classes, and DC members who are many years from retirement typically have investment horizons to ride out short-term volatility in pursuit of stronger long-term outcomes. Yet relying exclusively on public markets for those returns may leave portfolios insufficiently diversified.
Against a backdrop of geopolitical uncertainty, changing global trade dynamics and increased inflation risk, there is a growing case for accessing the broader range of return drivers that private markets can offer.
Increasingly, DC schemes are recognising this. In our 2026 DC Investment Survey, conducted among more than 50 Master Trust and single-employer DC schemes, while 85% of respondents ranked public equities among the three most attractive asset classes for the growth phase, private equity ranked close behind, with 78% placing it in their top three. More than half of respondents stated they expected to increase their allocation to private equity at their next investment review.
Differentiated opportunities
DC schemes are increasingly recognising that there is a huge amount of the corporate economy that sits outside of the listed markets. Private companies, in fact, account for a huge majority of the investible universe – and this is getting larger as more companies stay private for longer.
Private equity also provides access to businesses earlier in their development, while active ownership gives managers greater scope to influence strategy, operations and capital allocation. This is potentially a key distinction in an environment in which relying on rising market multiples is becoming more difficult.
But what does the market environment look like for pensions schemes allocating, or looking to allocate, to private equity today?
The asset class entered 2026 on a firmer footing, but the recovery has been uneven: dealmaking and exits improved after several subdued years, although much of the rebound has been concentrated in a relatively small number of large transactions.
Rather than being a reason for schemes to delay allocating to the asset class, this divergence may strengthen the case for certain areas of private equity.
Small is beautiful
Capital within private equity remains concentrated in the largest funds and transactions, leaving potentially more favourable economics elsewhere.
Average entry multiples for small and mid-sized private equity buyouts were 8.4x EBITDA in the first quarter of 2026, compared with 14.1x for large buyouts and 17.8x for the Russell 2000 index of small-cap US public equities.
This creates attractive entry points for small and mid-sized buyouts. It also means less reliance on leverage at a time when financing has become more expensive, and greater focus on what private equity managers can do to a business: professionalising operations, expanding into new markets or segments, improving margins, investing in technology or pursuing acquisitions.
Smaller businesses can offer considerable scope for such transformation. They also tend to be more domestically focused and use less leverage than larger businesses, potentially reducing some exposure to geopolitical and global trade disruption.
For schemes building or expanding a private equity allocation, this supports a selective approach focused on those areas of the market where valuations and value creation opportunities appear most compelling.
Options include a growing number of evergreen, semi-liquid funds, including LTAFs, providing a route to accessing private equity that is compatible with the operational requirements of DC schemes. In particular, their open-ended structure can accommodate ongoing cashflow activity associated with investment of new contributions, member transfers, switching activity and periodic portfolio rebalancing.
But not all semi-liquid funds are alike. Differences extend beyond the size of the underlying companies, whether large, mid-sized or smaller businesses. Funds also vary in how they access opportunities.
From continuity to opportunity
The traditional private equity model has a structural constraint: time. Closed-ended funds typically operate within predetermined lives, while the value-creation phase for an individual company often lasts around four to six years. Yet a successful business does not necessarily stop growing because its fund is approaching the end of that period.
Historically, the answer was often to sell the company – often to another private equity manager. Continuation investments offer an alternative. A high-quality company can remain under the ownership of the existing manager, while new investors provide capital for the next stage of development and existing investors are offered the option to take liquidity.
In practice, the structure can allow a manager to retain a company it already knows well – while new investors undertake due diligence, shaping the transaction and setting its value. The objective is not simply to extend the holding period, but to continue a value-creation strategy that may not yet have run its course.
The market is expanding rapidly. Total continuation transaction volume increased from a revised $76 billion in 2024 to a record $109 billion in 2025. Our research shows the market could grow to exceed $330 billion by 2035.
Importantly, this momentum appears to be more than a response to today's difficult exit environment. Excluding the exceptional post-Covid rebound in 2021, continuation investments have grown at an annual compound rate of about 30% since 2013 – and the "cyclical" component of 2025's record total was just 9%.
Finding the balance
Rather than underwriting an unfamiliar company at the beginning of a private equity ownership period, continuation investments provide access to established assets with a track record under their existing manager, with a proven manager and management team relationship, and greater visibility over the ongoing value-creation plan.
Private equity LTAFs that combine continuation investments alongside a portfolio of primary, direct, and co-investments, can therefore create a portfolio that is more balanced.
Incorporating continuation investments can also bring benefits from a portfolio construction point of view. Continuation vehicles have historically delivered liquidity faster than traditional buyout investments. Within semi-liquid vehicles, this can help smooth duration, generate cashflow and support ongoing cashflow management.
Continuation transactions do bring their own complexities, including valuation, governance and potential conflicts of interest. So discipline underwriting remains key – the quality of the underlying company, alignment between existing and incoming investors and the credibility of the next phase of value creation are all critical.
Selection matters
The development of the LTAF market means DC schemes no longer need to choose between operational practicality and access to private equity. The challenge now is one of selectivity.
In an asset class where manager skill and implementation approaches can vary significantly, identifying the right access route matters as much as making the allocation itself. This may point towards a diversified approach focused on smaller and mid-sized businesses, combined with a blend of primary, co-investment and continuation opportunities.
Done well, private equity can provide access to return drivers and growth opportunities that sit beyond a listed equity market that is looking increasingly concentrated, helping to support stronger diversification and better long-term outcomes for members.
