UK DC investors seeking bespoke private markets LTAFs
Defined contribution schemes in the UK are becoming more confident in seeking returns away from public markets, according to LCP (Andy Rain/EPA/Shutterstock)
Amid the backdrop of greater volatility in public equity markets, UK defined contribution master trusts are becoming more comfortable negotiating with private markets managers, crafting “bespoke” long-term asset fund structures, says Stephen Budge, partner at LCP. Managers are also having “good traction” offering premium investment strategies with performance fees.
Budge, who provides advisory services for some of the UK's largest master trusts and leads on the development of the consultancy's future DC investment strategies, says recent wobbles in equity markets have provided a window for DC schemes to review their portfolios in favour of private market strategies.
While the value of the S&P 500 in dollar terms rose by more than 15 per cent from the beginning of last year until November 25, recent concerns over US technology stock exposure have seen some master trusts exclude individual Magnificent Seven stocks from portfolios, says Budge.
This has happened on an "idiosyncratic basis", indicating "some level of risk management" by DC providers on the concentration risk rather than a wholesale review of US technology exposure.
Even more broadly, a growing sense of disillusionment with tech stocks has collided with DC schemes becoming more confident in seeking returns away from public markets.
"I think the real opportunity for [DC schemes], if you start to think about concerns with equities, [are] those diversifiers and other growth assets," says Budge. "That's [moving] into more private markets." Some DC schemes are keen to work with managers on "sophisticated" private assets strategies, with highly tailored mandates, says Budge.
Scale dictates level of engagement
Greater uptake of private assets has been facilitated by a host of DC providers expanding their consolidation plans in the run up to 2030. Aviva's master trust announced in September 2025 it had hit £15bn in its assets under management, and Smart Pension confirmed in November that it was on course to reach £10bn in the first half of 2026 through its £580mn acquisition of the WS Stakeholder Pension Scheme.
At the top end of the assets spectrum, scale will likely provide the opportunity for master trusts to bring more management capabilities in-house, potentially gaining cost efficiencies, Budge says. This could include bigger players like the £55bn National Employment Savings Trust, he adds, which is forecast to surpass £100bn in assets under management by 2030, and aims to have 30 per cent of its assets in private markets by then.
"If you go to [providers] like [the People's Pension] and Nest, they're not on a platform in the same way, so they don't have the same constraints around [private market investments]," he explains.
“If you go to [providers] like [the People’s Pension] and Nest, they’re not on a platform in the same way, so they don’t have the same constraints around [private market investments]”
However, the majority of UK master trusts scaling up will still be relying on cultivating strong manager relationships, with a significant uptake of long-term asset funds, which is "definitely the most common approach" for accessing private markets, Budge says.
More 'sophisticated' manager partnerships – and tailored products
Even for those master trusts still reliant on outsourcing private market allocations to LTAF providers, many are rapidly growing their confidence in tailoring strategies to suit their own needs, Budge explains.
A year ago, he says, DC customers' allocations to the private markets space were still "quite simplistic", but many are now making "complex allocations". While products like Schroders' Climate+ LTAF have been designed to be inclusive for schemes that are still nascent private markets investors, Budge says master trusts are now having "sophisticated" conversations with managers on "the size of the allocation, what the [asset] flows are going to be, the pricing of that, and everything else".
"They're not buying what I [would] term as solutions," he explains. "They don't go out to a manager and buy an LTAF or buy an asset allocation. They're designing what they want for investment. And either that's a bespoke LTAF, because they're creating it, or they're appointing underlying managers directly themselves."
Indeed, a host of DC providers have sought to work alongside managers to create tailored LTAF structures. Aegon UK, which announced in November that its main UK workplace default fund now had more than £1bn in LTAFs structures, has partnered with J.P. Morgan and BlackRock to create what it calls "bespoke" strategies for these allocations. It aims to have 17 per cent of portfolio funds allocated to LTAFs by 2028.
And, in August, MandateWire reported that HSBC's £3bn UK DC pension scheme would target a 15 per cent allocation to private markets through a bespoke LTAF designed by Fulcrum Asset Management, following its partnership with the manager to create a multi-asset fund offering in March 2024.
Some managers are eschewing the LTAF structures altogether. In June, James Lawrence, Smart Pension's director of investment proposition, told MandateWire it would be using brand new fund structures for its private market allocations. "It's not a [long-term asset fund]," Lawrence clarified. "These are standalone bespoke funds that we're building out with the selected managers."
Openness around fees
Greater engagement with managers has also brought performance fee considerations into the spotlight.
Budge says LCP is currently "trying to get a feel for what client appetite is" around premium products with additional fees, which are reported outside of the 0.75 per cent default charge cap for DC schemes. But he says these strategies are now "much more commonplace" than the industry had previously anticipated.
Indeed, in a Q2 2025 report, LCP found that "premium" private market products were proliferating, but these required employers "to look past the costs and focus on the higher expected returns". Managers are also becoming more vocal in defending performance fees, with Paul Forshaw, chief executive of Future Growth Capital, telling MandateWire Analysis in September that he thought performance fees were "the best way of aligning with your customers' interests".
While Budge says some providers are "getting good traction" offering strategies with performance fee elements, consultants will be keeping an eye on how these are reported, with transparency remaining an important consideration for DC schemes.
However, greater flexibility around fees could empower schemes to take up greater allocations to asset classes like private equity, "because some of the cost is not captured in the same way", he adds.
Potential headwinds for UK private assets
While the DC industry is becoming more adept at conversations around fees, there is still a question over the supply of UK private equity and venture capital deals in a landscape where it has traditionally been easier to invest in real assets, says Budge.
He is calling for greater industry engagement on growing the number of opportunities available to institutional investors.
Budge is a member of the British Private Equity & Venture Capital Association's technical experts group, which has played a role in the development of the BVCA's New Opportunities for Venture and Growth Acceleration (Nova) platform, which the organisation says it hopes will funnel greater DC investment into UK private opportunities. Towards the end of 2025, the proposal for Nova received backing from UK chancellor Rachel Reeves.
Right now, Budge says, too many private businesses would rather flock to the US for greater investment than partner with UK institutional investors. "It's not that we can't do private equity in the UK. It's just that we're not really geared up to do that and at scale," he says.
If the domestic private equity and VC landscape remains small, there is a risk that asset values will become inflated as a result of "too many people trying to buy these sorts of assets" with a limited number of opportunities to invest in, he adds.
At any rate, master trusts that are only recent investors in private markets will need to carefully build their allocations in different tranches, Budge affirms.
Many could consider a global private equity fund allocation to grow their private asset allocations, which may not have a "massive footprint" in the UK, but could still offer a "nice complement" to master trust portfolios, given the focus on liquidity and flexibility.
"If you're trying to build up an allocation, actually using [global funds] as part of your solution, at least initially, just allows some flexibility with how much you can deploy," he says.