Private assets in DC pensions – looking beyond the label

id

The UK’s largest pension providers are already introducing private assets into DC scheme portfolios. But as adoption grows, so too does the risk of treating them as a single, uniform allocation. We look at why the details matter for member outcomes.

id

‘Private assets’ and ‘private markets’ are often used as convenient catch-alls that can, in practice, look very different from each other. As with any label, they can be useful, but they can also gloss over important nuances.

In private markets, diversity is significant. The label can encompass everything from venture capital and private equity to private credit and real assets and infrastructure. These investments can differ considerably in terms of risk, return profile, performance drivers, liquidity and time horizon. Compared with listed markets, they’re less uniform, which raises the stakes on how exposure is structured and selected.

Why selection matters

Because the characteristics of private assets vary, outcomes can differ markedly as well. In private markets, the gap between stronger and weaker investment results is often wide. Much of this comes down to the manager’s skill and access – from sourcing opportunities and carrying out due diligence, to structuring investments and overseeing portfolios. Public markets, by contrast, tend to be more standardised.

So selection matters, but it’s limited by the range of opportunities a manager can access. These investments are not typically available to everyone. As with much else in this part of the investment universe, opportunities often originate privately. Access to them tends to be shaped by factors like reputation, long-standing relationships, the ability to commit capital reliably and operational capability. In practice, restricted or low-quality access will likely translate to a narrower – and potentially weaker – set of options. That’s one reason investment results in private markets can differ markedly from investor to investor.

Turning access into opportunity

Since uneven access is a defining feature of private markets, it creates a practical – and not just theoretical – challenge for investors. Addressing it requires more than simply gaining exposure to the asset class.

In practice, that often means partnering with specialists, using established platforms and drawing on the scale, networks and long-standing relationships that can help broaden the opportunity set. At Standard Life, this thinking has shaped how we approach private markets, including our decision to work in partnership with experienced specialists through Future Growth Capital (FGC), established as a joint venture between our business and Schroders.

FGC’s role is to focus on identifying, selecting and accessing private market investments across different strategies and structures, drawing on specialist expertise and established relationships to support a broader and more varied opportunity set for DC schemes. These differences become clearer when you look at the kinds of real-world investments that sit behind private market allocations.

Private markets in practice

Early-stage venture capital

One part of the private market landscape that illustrates this diversity is early-stage venture capital. An example from FGC is AAVantgarde,a UK-based biotechnology company working on potential treatments for inherited retinal diseases. This is a complex area that typically involves long development timelines, specialist expertise and long-term capital.

Businesses like this are rarely suited to public markets when they are in their early stages. Instead, they rely on sustained investment to support scientific research, clinical development and the building of specialist teams over time. That’s what makes them a natural fit for private market funding, where capital can be committed over longer horizons and without the same short-term market pressures.

In this case, the opportunity was introduced through established venture capital networks and alongside experienced specialist investors, following detailed scientific and commercial assessment. This reflects a broader feature of venture investing in private markets, where relationships and careful selection play an important role in determining which opportunities progress.

For DC members, examples like this help illustrate how private markets can support innovation that depends on time, scale and specialist expertise. They also make the concept more tangible, showing how long-term pension capital can be connected to real-world activity beyond listed markets.

Private credit linked to housing

A different example can be found in private credit linked to residential property. Pocket Living operates in the UK housing market, investing in long-term rental developments supported by private credit financing, often structured to provide regular income over time. These investments differ markedly from early-stage venture capital, with returns typically driven by underlying property, rental income and long-term demand rather than innovation or scientific development. Set alongside examples such as AAVantgarde, they highlight just how varied private market strategies can be – and why the label alone tells only part of the story.

Private markets can play a valuable role in DC portfolios, but they’re not a single, uniform exposure. As the examples above show, investment results depend less on the label itself and more on what sits beneath it – including how investments are selected, accessed and combined within a portfolio. If private markets are to support long-term member outcomes, looking beyond the label is essential.

The value of investments can go down as well as up and could be worth less than what was paid in. Past performance isn't a guide to future performance.