Master trusts have stepped up their interest in private markets over the last year, according to a report by consultancy LCP.
There is growing momentum in the UK for private markets investment by schemes. Pensions minister Torsten Bell told the Financial Times in March that he was in “very active discussions” with managers of defined contribution (DC) schemes over investing more in private markets.
The LCP report, which analysed master trust default investment strategies, observed that “over the past year, master trusts have dedicated significant effort to exploring private market assets or launching and investing in new private market funds”.
“A key factor in this process is determining how to incorporate private market investments while still delivering value for money to members,” it continued.
“Some master trusts have opted to include a minor allocation within the primary default strategy and a larger portion in a more premium default strategy. This approach provides companies choosing a master trust with the option of a low-cost default or a default that offers potentially higher investment returns.
“Most master trusts are testing the water with private market investments – making small allocations in the main default strategy and larger allocations for companies that select the premium strategy.”
Over the past 12 months, several master trusts have made forays into various areas of private markets. NatWest Cushon and Aegon are working with the British Business Bank on the development of the British Growth Partnership to invest in venture capital.
Meanwhile, The People’s Pension is building an internal private markets capability, while Nest has expanded its reach into private markets by purchasing a stake in IFM Investors.
More volatility ahead
LCP cautioned that master trust members should be ready for increased levels of volatility as their schemes invest in overseas equity allocations during their growth phases.
It noted that some of the biggest master trusts have allocated all of their growth phase to global equities, which have experienced high levels of volatility in recent weeks owing to factors such as US trade policy.
“There is a wide variation across master trust performance and that’s why it’s important to look under the bonnet of their strategies to avoid selecting a master trust with a poor investment strategy,” said LCP partner Nigel Dunn.
“In 2025, equity returns have become much more volatile and are likely to remain so over the next year. Increased incentives to allocate to private markets and invest in UK productive finance has and is likely to continue to influence strategic allocations in the future.”
