How pension providers are tackling the private markets challenge

The latest iteration of the Mansion House Compact comes nearly two years after the launch of the initial accord was announced in July 2023 – which saw signatories pledge to allocate at least 5% of DC default assets to unlisted equity by 2030.

A total of nine organisations – Aegon, Aviva, Legal & General (L&G), M&G, Mercer, Nest, Phoenix (Standard Life), Scottish Widows and Smart Pension – initially signed the pledge, with Aon and Natwest Cushon also joining the initiative later.

But, while 11 master trust and group personal pension providers signed up to the initial compact, a substantial number of major players did not – a lack of broader participation the government and industry is understood to be hoping to resolve with the Mansion House Compact II.

And, while many of the initial signatories have taken key steps to ready themselves for progress against the Mansion House Compact, providers have, in general, only invested limited assets so far.

Last July, the Association of British Insurers (ABI) published an update on the progress Mansion House Compact signatories had made against their pledge – finding that, as at February 2024, there had been limited progress in terms of assets invested but adding that firms had made "key enabling steps" to ready themselves for progress on the industry-led initiative.

Our summary shows how a selection of key providers have evolved their private market offerings significantly over the past 12 months.

But it also reveals the diversity between different private market offerings – with providers invested in a wide range of different private market asset classes and using a variety of structures through which to invest.

Aegon

At the beginning of April, Aegon announced it would "unlock" private markets for its workplace pension members, following Financial Conduct Authority authorisation of three long-term asset funds (LTAFs).

The retirement and investment solutions provider – a signatory of the Mansion House Compact – said the LTAFs will provide exposure to private markets for the 700,000 savers in its largest default fund, the £12bn Universal Balanced Collection (UBC).

It said the development marked the culmination of a rigorous selection, design and regulatory process – noting the changes to its default aim to improve risk-adjusted returns, enhance diversification and provide access to investment opportunities in areas that have historically been harder for workplace savers to access.

The three LTAFs Aegon UK is using in its default fund include a strategy already being run by BlackRock as well as two newly-approved strategies, which are being run by Aegon Asset Management and J.P. Morgan Asset Management.

Since October 2024, BlackRock has managed a bespoke, diversified alternative private markets strategy for Aegon UK – an LTAF strategy that includes private equity, private debt, real estate and infrastructure.

From the second half of this year, Aegon Asset Management's private credit LTAF will provide diversified exposure to a range of its leading private credit strategies, including corporate lending, fund financing, insured credit, renewables and asset backed finance.

Also, from the second half of this year, J.P. Morgan Asset Management's bespoke LTAF strategy will offer exposure to private markets such as through private equity, infrastructure, transportation and forestry investments.

Commenting on the move, Aegon UK managing director of investment proposition Lorna Blyth said Aegon's "tangible action" was in line with government objectives and would allow members to share in the successes of growth companies, as well as the higher returns expected from other alternative investments.

In November, Aegon UK also announced its intention to make a cornerstone investment, alongside NatWest Cushon, in the soon to be established British Growth Partnership. The investment will also form part of Aegon's UBC default.

 

The Aon MasterTrust

Looking ahead Aon will introduce private assets within the Aon Managed Core Retirement Pathway Funds and will increase the allocation to private assets within the Aon Managed Retirement Pathway Funds. Aon expects the inclusion of private assets to benefit members through higher expected investment returns and higher outcomes at retirement. 

Aon said the initial allocation will focus on those asset classes with strong growth potential and inflation characteristics including infrastructure, real estate and private equity. This will be implemented through specialist best of breed managers as Aon believes asset selection is key to delivering strong long-term returns and is currently finalising its initial portfolio. Alongside this, Aon said it will also introduce an allocation to private assets for members closer to retirement - reflecting the shorter time horizon, this will focus more on income and stability of returns with a preference for more liquid assets such as private debt and alternative fixed income. It said it expects to go live towards the end of 2025 / early 2026.

 

Fidelity International

Last November, Fidelity International set out its plans to integrate private assets into its default investment strategy for UK-based workplace pension schemes via its first LTAF.

The firm's £17.9bn (as at 31 December 24) default investment strategy, FutureWise, became the first investor in Fidelity's Diversified Private Assets LTAF. The firm originally received approval from the Financial Conduct Authority in August last year.

The LTAF fund aims to provide globally diversified private markets exposure across private equity, private credit, infrastructure, real estate and natural resources by accessing some of the best general partners (GPs) across these asset classes selected by Fidelity's experienced investment team. It will also provide exposure to public assets for liquidity purposes. It has been designed for DC pension schemes, and other suitable professional investors with longer-term investment horizons.

The integration of private assets into the firm's default investment strategy began earlier this year, and the organisation plans to increase exposure "gradually" to the LTAF over three years, until it reaches a 15% target allocation in the growth phase. Today, the allocation to the LTAF within the firm's default investment strategy already stands over 3%.

Commenting at the time of the announcement in November, Fidelity International head of workplace investing Dan Smith commented: "Incorporating Fidelity's LTAF within FutureWise's strategy will create new investment opportunities, broadening the range of assets that members are exposed to. We believe this will help to improve risk-adjusted returns and long-term outcomes for our members, within a robust and sustainable governance framework.

"FutureWise's development from a lifestyle to a target date fund structure in recent years has resulted in considerable growth for the strategy and helped to enhance member outcomes. The integration of private assets as part of its strategy marks the latest stage of its evolution."

 

Legal & General

L&G, a signatory of the original Mansion House Compact, unveiled its DC private markets offer in July last year – launching both a private markets fund and a target date fund range in a bid to offer DC members the opportunity to access the asset class.

The L&G Private Markets Access Fund (PMAF) – is available for DC schemes to invest in directly and via a newly launched range of target date funds, the L&G Lifetime Advantage Funds – offers a single point of access to a diversified portfolio of private market assets, including private equity, real estate, private credit and infrastructure.

The fund is structured as a fund of funds with an investment in a new private markets LTAF – the L&G Private Markets LTAF – sitting alongside exposure to liquid securities, as well as L&G and third-party strategies. It said underlying strategies such as the L&G NTR Clean Power (Europe) Fund and the L&G Build to Rent Fund were available for inclusion in the fund, offering DC clients exposure to L&G's specialist private market investment capabilities in these sectors.

L&G also launched its Affordable Housing Fund in July with investment from PMAF, a strategy that offers impactful real estate allocations that address the UK's shortage of high-quality affordable homes while offering investors diversified inflation-linked returns.

L&G additionally announced IFM Investors as one of the external managers for PMAF in November – saying IFM would run an infrastructure sleeve of around 19% of PMAF assets.

Commenting at the time of PMAF's launch, L&G group chief executive (CEO) António Simões said the move was an "important step forward" in putting UK pension capital to work to drive economic growth while supporting people to build the savings they need for retirement.

 

LifeSight by WTW

In April last year, WTW announced it would launch a private equity-focussed LTAF – with the £20bn LifeSight master trust agreeing to allocate up to 5% of its equity default fund in the new structure.

The CG WTW Private Equity Access LTAF, which was authorised in October, will invest in a range of private equity opportunities including co-investments.

WTW said it believed private equity investments provide the greatest opportunity to maximise long-term returns from private markets and are therefore where all long-term illiquid DC asset strategies should start.

LifeSight UK head Jelena Croad said WTW was "extremely proud" to be able to offer this to members within its existing fee structure.

 

Mercer Master Trust

Mercer is highly supportive of the inclusion of private markets for all institutional investors, including DC pension schemes, and is a signatory of the Mansion House Compact. Private markets will be introduced to Mercer SmartPath, the off-the-shelf default used by clients, including the Mercer Master Trust. In its chair's statement published last October, the Master Trust Trustees noted initial discussions with their investment adviser regarding the potential introduction of private markets into the default investment strategy as part of a broader project to enhance that strategy. The Trustees have since agreed to target an allocation of 10-15% in private markets by 2030, reflecting the potential for an allocation that is primarily focused on private equity and infrastructure equity to significantly enhance member long-term outcomes.

 

NatWest Cushon

NatWest Cushon – a signatory of the Mansion House Compact – launched its Sustainable Investment Strategy, a default solution targeting a 15% allocation to private markets in October 2021.

The provider accesses private markets through its founding commitment to the Schroders Capital Climate+ LTAF – a strategy that was launched in March 2023 to help UK DC investors access private markets and support the net-zero transition.

Schroders Capital's LTAF aims to invest in a diversified private markets portfolio across four long-term themes or ‘pillars' – climate mitigation; climate adaption; biodiversity/natural capital; and social vulnerabilities.

At the time of launch, Schroders Capital said private equity would be the key return engine of the portfolio, making up 20-40% of the allocation; and infrastructure would provide the strategy with "strong predictable cashflows" and also make up 20-40% of the allocation. To date, the fund allocates 53% to private equity, 33% to sustainable infrastructure, 8% to real estate and 6% to a ‘liquid climate impact' sleeve.

Following this investment, NatWest Cushon worked across 2024 to develop its private markets allocation seeking to add a new Natural Capital fund manager. In November last year, NatWest Cushon also announced it was working with the British Business Bank with a view to making an investment, alongside Aegon UK, in the soon to be established British Growth Partnership. At the same time the provider announced that it was also working with Future Planet Capital, the impact-led VC firm, again, with a view to making an investment.

In March NatWest Cushon also revealed it had been working with global law firm Eversheds Sutherland on a legal interpretation that enables trustees to take members' future standard of living into account when considering the scheme's investment strategy. The new legal advice effectively increases trustees' ability to allocate assets to private markets in the UK.

 

Nest

Government-backed master trust Nest – also a founder signatory of the Mansion House Compact – has an ambition to invest around 30% of its portfolio in private markets by 2030 – increasing its exposure from a current level of about £8bn to £30bn.

Currently, around 8% of Nest's default portfolio is invested in infrastructure and private equity – with a further 5.5% held in UK property and 3% in private credit, including loans to small and mid-market British companies.

In February this year, Nest announced it had acquired a 10% ownership stake in IFM Investors' holding company, Industry Super Holdings, to invest in IFM's infrastructure, debt, and private equity capabilities.

Through the partnership the pair plan to focus on new UK investment opportunities with the potential to "provide greater returns" to members with a focus on real asset investments – building on existing assets within IFM funds such as Arqiva, the M6 toll road, and airports in Manchester, London and the Midlands.

Nest said the partnership will support its ambition to "diversify and increase" its allocations to private market assets from 17% to 30% – highlighted its target of investing £5bn through IFM by 2030.

In August last year, Nest confirmed the appointment of Campbell Global – J.P. Morgan Asset Management's timberland investment advisory company – to provide it with a global portfolio of direct investments, focused on core traditional timberland. The master trust said it expects to deploy around £550m into this portfolio over a three-year period.

Other private market initiatives include Nest's partnership with L&G and PGGM to invest in build-to-rent schemes across the UK, announced in September last year, and the private equity partnerships the scheme announced with Schroders and HarbourVest Partners in 2022.

 

People's Pension

People's Pension – one of the major pension providers that did not sign the original Mansion House Compact in 2023 – announced in January it was to start investing a "significant proportion" of the £31bn of assets it manages in private markets.

Its announcement follows the scheme's statement last year that it had reached the scale needed to deploy meaningfully into private markets and would look to move in this direction.

People's Partnership – the provider of People's Pension – said it was expected that the trustees of the scheme would target an allocation of up to 10% of growth pool assets – or £4bn – by 2030, initially in assets such as infrastructure and real estate.

It added a "substantial part" of this new allocation of assets could be deployed in the UK if assets are available that meet its return requirement

Last month (29 April), TPP announced the appointment of Marija Simpraga and Raymond Wright as co-heads of real assets.

Simpraga joins from L&G Investment Management (LGIM) where she led private infrastructure research, with a focus on European clean energy and digital infrastructure and guided more than £10bn in real asset strategies.

Wright brings over 20 years' experience in pension fund management and has managed diverse private market assets with a focus on strategies aligned with ESG principles. He joins from the London CIV Local Government Pension Scheme where he was portfolio manager of private markets.

People's Partnership chief investment officer Dan Mikulskis said the appointment of Simpraga and Wright would enable the master trust to ensure it gets the best value for its seven million members in an area which presents an exciting opportunity.

 

Phoenix Group / Standard Life

In July last year, Phoenix Group and Schroders announced they had formed a strategic partnership to launch a private markets investment manager, Future Growth Capital (FGC).

The asset management partnership had an initial commitment of £1bn and aims to deploy a total of £10-20bn of investor funds into UK and global private markets over the next decade.

Phoenix Group said it had initially identified around £50bn of DC products where illiquid assets have the potential to deliver better long-term outcomes for policyholders – saying it intended to invest 5% of these assets, around £2.5bn, over the coming three to five years.

It said this initial commitment would provide scale at inception, with ongoing fundraising led by both Schroders and Phoenix Group. FGC will initially leverage Schroders' LTAF investment platform.

Commenting at the time of the launch, Phoenix Group CEO Andy Briggs said the formation of FGC would help it deliver on its our goal of giving UK long-term savers a way to invest in a more diversified portfolio with the potential for higher returns, from a broader range of assets. He added this facility would also play a significant role in the future design of its flagship defaults. The group added that it views the market as evolving to be less about price and more focused on customer outcomes.

In October, FGC received regulatory approval for two diversified private market LTAFs – a global strategy and a complementary UK strategy.

It said the Schroders Future Growth Capital UK Private Assets LTAF and the Schroders Future Growth Capital Global Private Assets LTAF both offer actively-managed, diversified private markets exposure and target a 10% investment return after fees per annum.

The two funds were formally launched last month.

 

Scottish Widows

In March this year, Scottish Widows said it was launching a new default, Scottish Widows Lifetime Investment.

The provider, also a signatory of the Mansion House Compact, said the new default would be available immediately for new employers and for all customers on a self-select basis. Existing customers – those who are invested in the current £60bn+ Pension Investment Approaches default offering – would also transition to the new default.

Scottish Widows said it planned to incorporate private markets investment into this proposition, with further details to be announced in due course. 

Last month (April), Scottish Widows announced it would launch an open architecture LTAF later this year, pending regulatory approval.

It said this LTAF would provide access to a range of private market investments and will leverage all implementation routes from global general partners (GPs) through primary or secondaries co-investment opportunities and direct sourcing.

Scottish Widows said following a "rigorous" selection process, it had selected Aberdeen Investments and BNP Paribas Asset Management as the managers of the LTAF's sub-funds – with Aberdeen sourcing core exposures in private equity, infrastructure and UK venture capital assets and BNP Paribas sourcing private credit assets.

 

Smart Pension

Smart Pension, another Mansion House Compact signatory, announced it had incorporated private market illiquids in its default strategy in March 2021. It now has an allocation of around 6% in private market debt.

The scheme's allocation is invested through an allocation Natixis Investment Management's MV Dual Credit Fund within its default growth fund, Smart Sustainable Growth.

The MV Dual Credit Fund blends strategies from two of the asset manager's specialist affiliates, MV Credit and Loomis Sayles – and is formed of private market allocations of pan-European senior leveraged loans and some subordinated debt as well as a smaller allocation into multi-asset credit, which provides liquidity for the fund and gives it daily dealing liquidity.

Smart intends to increase its allocation significantly in the coming years, investing across private debt, renewable infrastructure and private equity, including venture and impact debt.