Up to £250bn of DC assets could be committed to private equity investments by the end of the decade, according to the latest analysis from Hymans Robertson, as it warns a shift in mindset is required to meet this goal. Its Illiquid Investment Embracing the Opportunities paper published today, finds that significant allocations to private equity have the potential to improve retirement outcomes for DC savers by well in excess of 10% based on a consensus view of returns. The leading pensions and financial services firm found there is scope to introduce material allocations to illiquids assets more generally and radically improve the retirement outcomes for millions of savers.

The paper examines different types of private equity investments and, in particular, considers how to build a diversified portfolio to reduce risk, manage liquidity and target overall value. The findings reveal that there are opportunities for pensions schemes to integrate their wider sustainability and climate goals as part of their wider portfolio as well.

Commenting on the findings in the paper, Callum Stewart, Head of DC Investment, at Hymans Robertson, says:

“The last decade has been a time of change for the UK, with the government looking to encourage long-term investment in the UK economy and try to breakdown some of the barriers to investing in illiquid asset classes through initiatives such as the Patient Capital review, the ‘Levelling Up’ agenda and guidance produced by the Productive Finance Working Groups. Our research finds that there is a potential for exceptional net return from private equity investments, however the variability of returns can be vast, and selecting high quality managers will be crucial to longer term success.

“However, taking such a risk can pay off and we found that there is the potential for up to £250bn of DC asset classes to be committed in this way by the end of the decade. A change of mindset is needed to truly deliver better outcomes for members, with a diversified thought process towards longer-term value rather than short term cost.”

A copy of the Illiquid Investment Embracing Opportunities Paper can be found here.