Larger UK pension schemes could unlock billions in private markets investment. Research from People’s Pension and Invesco suggests adopting a model that focuses on governance, investment expertise and manager partnerships would support success.
UK pension funds could channel between £30 billion and £90 billion into domestic private markets as they consolidate and develop more sophisticated investment capabilities, according to research from Invesco and People’s Pension.
The Built to Grow report estimates that between £10 billion and £45 billion could reach productive investment, including growth capital and infrastructure development. However, it argues, that increasing the scale of pension schemes will not, by itself, improve investment outcomes.
Presenting the findings at the Pensions UK annual conference, Mary Cahani, head of UK DC distribution at Invesco, said: “Scale is an enabler, not an outcome.”
The research suggests that stronger asset ownership models could generate an additional 25–75 basis points of annual returns, potentially increasing retirement incomes by 5–20% over time. These gains would arise as advantages from scale, governance, talent and decision-making capability, rather than private markets exposure alone.
Cahani highlighted £25 billion as an indicative threshold for significant scale benefits, with direct alternatives investment and co-investment becoming more viable above £50 billion. However, these approaches require substantial resources for sourcing, due diligence and oversight.
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Capturing the value
Dan Mikulskis, chief investment officer at People’s Pension, argued that greater scale was already transforming the scheme’s relationships with private markets managers.
“Certainly, over the last year and a half, extra scale has enabled us to go out and strike deals with managers that we just would not have been able to do at smaller scales,” he said.
These included bespoke arrangements, more favourable terms and access to investments previously unavailable to the scheme.
However, Mikulskis warned that asset owners must ensure the benefits of private markets investment are not absorbed by intermediaries.
“The private markets industry is very good at identifying good assets, but too often turns around and pays all the benefit of them back to managers,” he said.
He also challenged assumptions that adopting the Canadian or Australian investment models would necessarily improve performance. UK DC master trusts had outperformed their counterparts in those markets over the past decade, benefiting from inexpensive passive global equity strategies.
“Those other organisations are doing fancier private market stuff, which just hasn’t been rewarded over the last decade,” he said. “[But] I don’t think the next decade will necessarily be like that.”
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Partnership approach
The research advocates an ownership model in which pension schemes retain strategic decisions while drawing on external managers for specialist capabilities, rather than pursuing wholesale insourcing.
Tony Wong, co-head of investments at Invesco, said private markets illustrated the trade-offs involved. Bringing investment activities in-house could reduce external fees, but required substantial expenditure on personnel, systems and operations.
He argued that asset managers needed to move beyond product-led relationships towards partnerships covering investment implementation, strategic advice and operational capabilities.
Wong also encouraged schemes to use their growing negotiating power. “You should negotiate for much better, more aggressive fees because the value is in the long-term horizon and the flows that will come,” he said.
Mikulskis suggested that the strongest relationships could go beyond fee discounts, with schemes potentially seeding new investment strategies that managers were seeking to develop.
For private markets investors, the implication is that scale provides an opportunity to negotiate better access, terms and governance arrangements, but does not guarantee superior performance. The challenge is converting that institutional strength into better returns for scheme members.