Unlocking growth potential for DC schemes
The ability for DC schemes to invest in private markets marks an important shift in how workplace pensions can diversify and grow. Until recently, DC pensions were largely limited to listed assets such as equities and bonds, but the FCA’s introduction of long‑term asset funds (LTAFs) in 2021 has opened the door to a broader range of investments. This enables schemes to access innovative and previously unavailable opportunities across areas like infrastructure, renewable energy, and high‑growth private businesses.
For members, incorporating private markets into default funds can help improve long‑term outcomes by enhancing diversification and offering the potential for stronger risk‑adjusted returns. These investments support exposure to long‑term growth opportunities and complement the existing mix of publicly traded assets.
We’re adding private market investments to our main workplace pension default funds including Universal Balanced Collection and Aegon LifePath.
Private markets can offer several potential benefits
A wider mix of investments – helps support better outcomes for members by reducing reliance on particular asset types, strengthening resilience in changing markets.
Potential for stronger long-term growth – private markets often include fast-growing companies and projects which may offer stronger growth over time than publicly listed companies. However, higher returns aren't guaranteed.
Access to new ideas and projects – including renewable energy, sustainable infrastructure and forestry, which can also support positive environmental and social outcomes.
But it's also important to understand the risks
Values can rise and fall more sharply - some private market investments can rise and fall in value more than listed investments, particularly in the short term.
They can take longer to sell - especially in extreme market conditions. In our default funds, they sit alongside a broad range of more easily traded assets. This helps to make sure members can access savings whenever they need to.
Specialist expertise is required - so we work with experienced teams who carefully select and manage these investments on the behalf of your members.
As with all investments, their value can go down as well as up and scheme members may get back less than they invest.
Types of private markets
Private markets cover a broad range of investments, including things like growing businesses, loans to companies, infrastructure projects, forestry, or property. What they all share is that they’re not bought and sold on a stock exchange. Instead, they involve investing directly in businesses or projects that operate outside the public markets.
Private equity involves investing in companies that aren’t listed on public stock markets. These are typically established businesses that specialist fund managers believe can grow, innovate or operate more efficiently with the right support. Managers take a hands‑on approach, working closely with each business to drive improvements, expand operations, or strengthen long‑term strategy.
Including private equity in a workplace pension can support stronger long‑term outcomes. Because these investments often involve multi‑year transformation, they can offer attractive long‑term growth potential aligned with member needs.
Example private equity investment.
Biotechnology company developing new cancer treatments
This investment supports a young biotechnology company developing innovative, cell‑based cancer treatments that use a patient’s own strengthened cells to fight the disease more effectively.
Additional funding has enabled the company to cut manufacturing costs by around 60% and produce treatments up to ten times faster. These efficiencies helped it secure a major agreement with a large pharmaceutical partner committed to buying a significant volume of its products.
If the company continues to grow and its treatments become more widely adopted, its value could increase over time, supporting long‑term growth in members’ pension savings.
Private credit involves lending directly to private businesses rather than buying their shares. These loans support growth, new projects or improved financial management. Because the lending is private, specialist fund managers carry out detailed analysis to identify strong businesses and structure loans to help manage risk and protect investors.
For employers, adding private credit to a workplace pension scheme can help support more stable long‑term outcomes. These investments typically provide regular interest payments, contributing to smoother overall returns, though payments aren’t guaranteed and can be affected by company or economic performance. Within a diversified pension strategy, private credit can enhance resilience and support long‑term return objectives for members.
Example private credit investment.
Financing the world’s largest offshore wind farm
This private credit investment helped fund a major North Sea offshore wind farm, one of the world’s largest clean‑energy projects. Once fully operational, it is expected to generate enough renewable electricity for around six million homes, more than twice the number in Scotland. Each turbine can power roughly 16,000 homes a year and is designed to last about 35 years, supporting the long‑term transition to cleaner energy.
By providing financing, investors played a crucial role in enabling this large‑scale project. In return, private credit investments aim to deliver steady, reliable returns through regular repayments from the businesses or projects they support. As the wind farm develops and begins generating energy, it can grow in value and provide stable income, helping support long‑term pension savings while contributing to a more sustainable future.
Infrastructure investment supports essential services such as transport, renewable energy, water systems and digital connectivity. These large‑scale projects underpin economic activity, strengthen resilience and improve everyday life.
Many infrastructure projects provide relatively predictable income streams, such as payments for energy use or transport access, which can help smooth returns within a diversified pension portfolio. While returns aren’t guaranteed and can be affected by project costs, regulation or demand, infrastructure can play a valuable role alongside other asset classes in enhancing long‑term resilience and return potential for members’ pension savings.
Example infrastructure investment.
Global infrastructure and transport network
This investment provides access to a fund that owns essential global infrastructure, including wind farms, data centres, shipping, rail networks and major structures like bridges. These assets power homes, support digital services and keep transport moving.
Infrastructure investments aim to deliver steady, reliable returns. They are often less influenced by short‑term market swings, and many continue to perform well when prices rise because services like energy and transport remain in high demand. Over time, this diverse portfolio of long‑lasting infrastructure can help grow members’ pension savings while supporting projects that benefit communities and the wider economy.
Real estate involves investing in the buildings and spaces businesses and communities rely on, such as offices, warehouses, homes and healthcare facilities. These properties can generate regular rental income and may increase in value over time. Specialist fund managers choose and manage assets they believe can deliver stable, long‑term results.
Rental income can support a steady return profile, while potential capital growth can strengthen overall performance. However, returns aren’t guaranteed, and property values and rental demand can rise or fall with economic and market conditions. As part of a diversified pension strategy, real estate can play a valuable role in supporting long‑term return goals.
Example real estate investment.
Investing in UK real estate
This investment provides access to a diversified mix of UK residential, commercial and industrial property, with a strong emphasis on commercial assets. One example is a major business park that supports over 250 local jobs and provides shops and leisure facilities for the community.
Post‑pandemic shifts in the property market created opportunities to buy high‑quality commercial and industrial buildings at attractive prices, while still benefiting from resilient residential property. As commercial vacancies fall and conditions improve, these assets can grow in value.
Investing across different property types helps spread risk and creates multiple income sources. Because real estate often behaves differently from investments like shares, it can add balance and long‑term stability to members’ pensions.
Forestry involves investing in sustainably managed forests that grow timber and support the natural environment. As trees mature, they increase in value, and the harvested timber can be sold for everyday products. Specialist managers select and oversee forests they expect to perform well over the long term, with a strong focus on stewardship, biodiversity and sustainable land management.
Tree growth is generally steady and predictable, helping support a more consistent return profile. Timber sales can also add resilience within a diversified pension portfolio. While returns aren’t guaranteed, forestry can contribute to long‑term growth potential and sustainability within members’ pension savings.
Example forestry investment.
Investing in sustainable forestry
This investment provides access to an experienced global forestry manager with a long track record of managing millions of acres of woodland. Forests are sustainably managed and replanted to support long‑term growth and environmental benefits.
Forestry offers a climate‑positive investment opportunity. Growing trees absorb carbon, helping offset emissions, while the forests generate returns through timber used in areas like housebuilding and paper production, as well as through selling carbon credits to organisations reducing their environmental impact.
Because forestry has multiple income sources, it often behaves differently from traditional investments such as shares and bonds. This helps spread risk, improve diversification within a pension portfolio, and provide some protection when prices rise, as demand for timber and carbon credits typically remains strong.
Aligning to our goals
Our plans to integrate private market investments into our workplace pension offering supports four key aims:
Improve member outcomes, by offering members value for money and unlocking new and innovative investment opportunities for workplace savers.
Support our commitment to halve greenhouse gas emissions for our pension default fund range by 2030 and to achieve net-zero emissions by 2050¹.
Help us meet our pledge to invest in climate solutions – investments that directly contribute to climate change mitigation and/or adaption, such as investment in renewable energy.
As a signatory to the Mansion House Accord, we aim to invest at least 10% of our default fund investments to private markets (with a minimum 5% investment in UK private assets) by 2030.
¹Measured using carbon footprint across our full range of default funds. Emissions targets don’t apply to individual funds. 2030 target based on 2020 start date and applies to scope 1 and 2 emissions from listed equities and corporate fixed income only.
Find out how our main defaults are changing
We're adding private markets investments to our largest default funds, the Universal Balanced Collection and our Aegon LifePath funds.
Read more about what's changing and why.
Universal Balanced Collection
(Through Aegon Retirement Choices)
Aegon Lifepath
(Through TargetPlan and Aegon Master Trust)
The value of investments may go down as well as up and investors may get back less than they invest.
Private market investments introduce illiquidity risk. This risk arises because private market investments, such as private equity, real estate, and certain types of debt instruments, are not as easily sold or converted into cash, compared to public market investments like equities or bonds.
In extreme conditions, illiquidity can lead to deferred payments, meaning investors might not be able to access their investment when desired. It’s important for investors to review the terms and conditions of their investment policies to understand the potential for payment deferrals and any changes that might occur, while noting that these are subject to change.
