Providers make greater use of private market assets in DC strategy

• Private market allocations become a key differentiator in default arrangements 

• Value for Money framework will increase transparency around member outcomes 

Strategic asset allocation within default DC pension strategies is becoming increasingly important as providers make greater use of private market assets, according to Hymans Robertson in its latest DC Provider Insights  report. The analysis finds that providers are increasingly looking beyond traditional listed equity exposure, with private market assets becoming a more prominent feature of default arrangements. At the same time, the Value for Money (VfM) framework is expected to create greater transparency around outcomes. This will place increased focus on whether providers are delivering long-term value for members. With the VfM framework set to increase transparency, understanding differences in strategy design and private market implementation will become increasingly important. As default strategies continue to evolve, the leading pensions and financial services consultancy is warning that DC trustees and employers should regularly assess whether their provider’s approach remains the best suited to secure positive member outcomes. 

The report argues that private market assets can offer valuable diversification benefits and an alternative source of long-term returns for DC savers. However, it warns that successful implementation requires careful consideration of portfolio construction, governance arrangements and manager selection. The report also highlights the role the incoming VfM framework could play in reshaping provider assessments. Trustees and employers must engage with providers now to understand how private market allocations are being implemented, how value will be demonstrated under the new framework, and whether their current default strategy remains fit for purpose.

Commenting on the findings, Shabna Islam, Head of DC Provider Relations, Hymans Robertson, said:

"The DC market continues to evolve as providers search for new sources of diversification and rethink how they can deliver stronger outcomes for members over the long term. We're seeing an increasing number of providers incorporate private market assets into their default strategies. This isn’t just for younger members seeking growth but also across different stages of the retirement journey. While many providers continue to share similar headline objectives, there are increasingly important differences beneath the surface in how these strategies are constructed, implemented and governed.

"As private market allocations become more common, we expect to see greater divergence across the market. The benefits these assets can offer will depend not only on the allocation itself, but on how effectively providers implement them and oversee the associated risks. That means trustees and employers need to look beyond headline performance figures. They must challenge providers on the detail of their investment approach, ensuring it remains appropriate for their membership and capable of delivering strong outcomes over the decades ahead."

Commenting on the VfM framework, Anthony Ellis, Head of DC Trust Consulting, Hymans Robertson, said:

"The new Value for Money (VfM) framework has the potential to be one of the most significant developments in the DC market in recent years. It will increase transparency around member outcomes and encourage a more holistic assessment of value. This, in turn should provide employers, trustees and members with a much clearer understanding of how providers are performing. Importantly, VfM recognises that value is about much more than cost alone helping to bring a greater focus to the long-term drivers of member outcomes.

"The framework is also likely to shine a brighter light on the differences emerging between providers as investment strategies continue to evolve. As private market investments become more widely adopted and strategy design becomes more complex, providers will need to clearly demonstrate how these decisions contribute to better outcomes. Trustees and employers should start conversations now. They should ask how providers expect to be assessed, how they plan to evidence value and how they are using their scale, governance and investment capabilities to improve retirement outcomes for members." 

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