Nearly three years since Schroders launched the first UK LTAF, Climate+, these findings underline the growing momentum for this investment vehicle.
Set against a backdrop of ongoing regulatory and legislative reform, as well as a heightened focus on long-term member outcomes, UK DC schemes are continuing to evolve their investment strategies.
Some 74% of respondents expect to increase private market allocations for growth-phase strategies, while 59% anticipate boosting exposure for retirement-phase portfolios. More than half (53%) of respondents increased their private equity allocation at their most recent investment review, and risk-adjusted returns were cited as the most significant drivers of private market investment decisions.
More than a quarter of DC schemes are also expecting to significantly increase their UK private markets exposure, with 25-49% of their total private markets allocation invested in domestic private markets solutions. According to the UK’s Mansion House Accord, signatory schemes plan to allocate at least 5% to UK private markets by 2030, meaning that their overall allocation to private markets will be significantly above the 10% level set by the Accord.
Under half (40%) of respondents said they had increased their exposure to UK infrastructure at their most recent review, with 35% boosting their allocations to private debt. A large majority of respondents (82%) described renewable infrastructure as the most attractive net zero investment opportunity.
Despite growing interest from DC schemes looking to increase their UK exposure, they seem to disagree that further scheme consolidation is required to unlock capital for UK productive assets. More than a third (38%) of all respondents believe they already possess the required scale, and another 34% say barriers to investing in these assets go beyond scale.
Tellingly, more than two thirds of respondents (68%) cited the lack of suitable opportunities as the most common barrier to investing in UK private markets.
Ryan Taylor, Head of UK DC Clients at Schroders, said: “The DC landscape is changing rapidly, and the Pension Scheme Bill and Mansion House Accord will reshape the investment landscape. Our inaugural DC Investment Survey looks at these seismic shifts driving the industry and shaping DC investment.
“The biggest winner would appear to be LTAFs with nearly three in four DC schemes planning to structure their private market investments through the investment vehicle. At the same time, more than a quarter plan UK private market allocations significantly above those encouraged by the Mansion House Accord, suggesting growing momentum behind this investment trend.”
Schroders and Longview Network’s inaugural Defined Contribution Investment Survey is based on 56 responses from master and single trust DC schemes, representing more than £198 billion in assets under management and more than 70% of Mansion House Accord master trust signatories.
To read the full report, click here.
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