Size matters: Scoping the UK private markets opportunity for incoming DC capital
Proposed government reforms mark a potential turning point for UK DC pensions, but is the drive to invest more in UK private markets matched by the potential opportunity set – and how should UK DC pensions position themselves for the initial and ongoing flow of capital?
Autheurs
Successive governments have sought to encourage greater investment by DC pensions into UK growth assets, aiming for better retirement outcomes while recognising that DC capital can support UK growth.
The industry is mobilising behind the government’s agenda. In particular, 17 signatories to the Mansion House Accord have committed to allocate 5% of their default strategy assets under management (AUM) to UK private markets by 2030.
How significant will this capital inflow be for UK private markets? And what is the opportunity set across the private market asset classes for UK pension providers to access?
A new paper by Future Growth Capital, the independent private markets solutions business formed by Phoenix Group and Schroders, seeks to answer these questions. You can read it in full here.
- Annual investment into UK private markets by UK Master Trusts is expected to total less than £6 billion for the five years to 2030 – less than 3% of current investment volumes, suggesting room for substantial growth.
- Private equity is the growth engine of the economy, accounting for around £30bn of new equity capital and as much as £160 billion in deal volumes each year, backing approximately 13,000 businesses that employ 2.5 million people.
- In venture specifically, the UK is a global leader. It is home to the world’s fifth ranked innovation hub and third largest venture capital market, with particular prowess in advanced technology and life sciences.
- Private debt is one of the most significant capital market trends since the Global Financial Crisis, with the sector having grown in response to retrenchment from banks. The UK is the largest private debt market in Europe, with around £90 billion in new lending originated annually.
- The UK is at the forefront of the global energy transition, with £150 billion already invested in renewable generation assets, the world's largest offshore wind potential, and the government citing the need for £40 billion of new investment annually to meet decarbonisation targets.
- Historic returns for these asset classes suggest they can add growth, resilience and diversification to portfolios – and our modelling shows they have the potential to enhance retirement outcomes for savers vs traditional portfolios that invest solely in listed assets.
- UK private market returns specifically have outperformed public markets and broader global private markets over the past 25 years – and we see capacity for performance to remain strong as new domestic capital comes into the sector.
- In addition to the potential portfolio benefits of including UK private markets in default strategies, investments could provide a significant boost to the UK economy.
Please note that this paper is for informational purposes only and should not be construed as legal, tax, investment, or financial advice. Always seek professional advice before making any investment decision. Past performance is not a guide to future results and may not be repeated.
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Autheurs
Topics