Unlocking growth potential from private companies

Embracing the opportunities

09 Feb 2023

Welcome to the third publication in our Embracing the opportunities series, focusing on why and how DC schemes should access private equity.

The UK government’s “Patient Capital” review back in 2017, a plan to encourage long-term investment in the UK economy, aimed to breakdown some of the barriers to investing in illiquid asset classes. Following previous publications focusing on illiquid assets generally and infrastructure, we explore the potential uses of private equity as an asset class for DC schemes, including the role the asset class could play, impact on member outcomes, and the practicalities of including it in DC default strategies.

In the first publication of this series, we established why those responsible for DC schemes should explore opportunities in illiquid investments to improve retirement outcomes for members. We also dispelled some of the myths associated with investing in less liquid assets. In our second publication we focused on infrastructure and its potential role in DC schemes.

What is private equity?

Private equity investment involves seeking out privately owned companies with high potential for growth and/or revenue generation. Investment managers will typically take a controlling stake in the acquired company and then seek to add value by making operational or financial improvements to help the company grow, with a view to selling the business after a few years.

Different types of private equity investments have different risk and return characteristics, as summarised in the table below. We would typically expect investors to build a diversified portfolio covering all three types to help reduce unsystematic risk.

Download our publication for more on: 

  • Why DC schemes should invest in private equity
  • The potential role private equity has in DC strategies
  • How private equity can be implemented in DC schemes

Look out for further publications in our illiquid investments for DC schemes series. If you have any questions on the subject in the meantime, please get in touch.

Embracing the opportunities - Unlocking growth potential from private companies


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