From co-investment-heavy portfolios to equity-based liquidity management, Mercer is using scale across its DC platform to embed private markets into its default strategy.
Mercer is preparing to introduce private markets into its DC default growth investment strategy, including for its flagship DC Master Trust, embedding private equity and infrastructure equity via a long-term asset fund (LTAF). The move follows a multi-year trustee process and will be phased gradually, with a target allocation of between 10% and 15% by 2030.
Private markets will gradually be introduced to the growth phase of the default investment strategy and, at launch, will come at no additional cost to members – an approach that has shaped both the structure of the allocation and the way it is implemented.
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“Private markets will sit within the default investment strategy, Mercer SmartPath, for all members,” says Ben Lewis, head of investment proposition at Mercer.
For the Mercer DC Master Trust, the initial private markets allocation will be introduced in the middle of 2026. “Importantly, this will be at no additional cost to members. We wanted the initial allocation at no cost to avoid fees being a point of friction.”
The Mercer DC Master Trust has around £10bn in assets, but Mercer is clear that its approach to private markets rests on scale across its broader DC ecosystem. Mercer’s UK DC solutions business already exceeds the government’s scale target of £25bn, and includes the now:pensions Master Trust, which holds around £7bn. Now: pensions is investing in the same private markets portfolio as Mercer’s other UK DC solutions, together taking advantage of the greater scale.
“We’re often asked about scale in the master trust, as there’s a big focus in the UK around getting to the ‘magic £25bn’,” Lewis says. “But for us, it’s our broader business that matters.”
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All Mercer DC arrangements, except for the recently acquired now: pensions, use the same default investment strategy, Mercer SmartPath. “We provide a single Mercer SmartPath design for all clients,” Lewis says. “We’re not carrying lots of legacy defaults. Everyone gets the same funds across our solutions.”
That consistency matters operationally and strategically. It simplifies governance, enables collective investment decisions and allows Mercer to build private markets exposure across multiple vehicles rather than treating each arrangement in isolation.
Steady portfolio construction
The private markets allocation will be delivered via an LTAF launched under the Schroders umbrella, with management responsibilities split across several sleeves.
The target LTAF allocations comprise: 50% in private equity; 25% infrastructure equity; and 25% liquid assets, primarily listed equities.
Schroders will act as the LTAF operator, while Mercer will retain an active role in shaping asset selection and governance. “Schroders will effectively be the entity launching the LTAF,” Lewis says, “but Mercer will have a role in ensuring the types of assets we think will make most sense for investors in the growth phase of their DC journey are represented.”
The private equity allocation will be managed by Schroders and focused on lower mid-market growth and buyout opportunities. It will invest globally, with flexibility to pursue UK deals where they offer relative value.
“The vehicle that will predominantly deliver private equity allocations will be managed by Schroders,” Lewis says. “It will focus on lower-mid-market growth and buyout private equity opportunities. It will invest globally, but we expect there to be some opportunities in the UK – albeit they need to stack up relative to the opportunity set that is available elsewhere.”
Energy transition investments are exciting for members. They provide some great, tangible stories that we think will land well.
Ben Lewis, Mercer
Private equity exposure will be delivered mainly through co-investments, alongside exposure to secondaries.
The infrastructure equity sleeve, accounting for 25% of the LTAF, will be managed by Mercer and will also be co-investment led. It draws on Mercer’s global private markets platform, which totals around $50 billion.
“The private equity and infrastructure co-investment portfolios will deliver an allocation with a similar approach to Mercer’s Australian Super,” Lewis says.
Within that sleeve, Mercer has included a mandate to Schroders Greencoat’s closed-ended energy transition infrastructure fund, targeting assets such as solar, wind, EV charging, grid infrastructure, hydrogen, carbon capture and battery storage.
“These investments are exciting for members,” Lewis adds. “They provide some great, tangible stories that we think will land well.”
Liquidity by design
One of Mercer’s clearest design priorities has been avoiding excessive cash holdings within the LTAF – a concern that has emerged in other DC private markets allocations.
“I’ve seen elsewhere that LTAFs operate with too much cash,” Lewis says. “They do the right thing by investing in private markets, but then you’re sandbagging your investment returns.”
Mercer has adopted two mechanisms to address this. The first is a bespoke capital-call process, under which Schroders will only draw capital when it is required, calling on committed capital over time. The second is the use of equities – not cash – as the primary liquidity buffer.
“We are making a conscious choice to maintain the expected return within the LTAF and use equities as a liquidity mechanism, rather than having a larger cash allocation,” Lewis says. Those equities will sit in a Paris-aligned global equity index, consistent with the approach used elsewhere in Mercer SmartPath.
Private markets will be introduced exclusively in the growth phase of the default strategy, where members are expected to remain invested over a long period. “Younger members could be invested for decades,” Lewis says. “It’s the place where we can get the most impact out of a private markets allocation.”
The hurdle for inclusion is based on making a contribution to net returns. “We already have a portfolio that is predominantly invested in public equities,” he adds. “Therefore, the allocation needs to be growth-focused and deliver outperformance over that portfolio.”
At launch, the allocation will be funded from the fixed income sleeve of the growth default fund, which currently accounts for around 15% of assets alongside an 85% equity allocation. Mercer sees this as a way to introduce both additional growth potential and diversification.
Lewis expects the allocation to build gradually towards 10–15% by 2030, with modelling suggests this could materially improve outcomes. “The analysis indicates this could increase pot sizes by in excess of 5% by the point of retirement,” Lewis says.
Cost discipline and trustee control
The decision not to increase member charges at launch has shaped the allocation. “While fees are likely to increase in the coming years to accommodate more private markets investment, they are going to remain at a relatively low-cost point,” Lewis says. “One of the appeals of co-investments is cost.”
Co-investments also help address fairness considerations around the J-curve, a particular concern in DC where members may enter and exit funds at different points.
“The fact that our Australian team have used co-investments illustrates the potential to manage some of the issues facing DC members,” Lewis says.
Mercer is a signatory to the Mansion House Accord, but Lewis is clear that the trustees’ thinking pre-dated the policy initiative. “We were having conversations around private markets before the Accord came into existence,” he says.
Where the initiative has helped is in providing industry alignment, says Lewis. “The Accord helped the industry coalesce around a focal point. Having an agreed direction of travel gives our clients and members a good degree of certainty.”
We don’t want to be in a position where we’re forcing managers to buy assets they don’t necessarily want.
Ben Lewis, Mercer
On the UK allocation target, Mercer is planning to be selective. “Our focus is on getting the right assets,” Lewis says. “We don’t want to be in a position where we’re forcing managers to buy assets they don’t necessarily want.”
Initial seeding of the LTAF will take place via now:pensions in March, with Mercer DC Master Trust expected to invest from June 2026. Commitments will be reviewed annually.
“Diversification by entry point in private markets matters,” Lewis says. “There are good reasons to spread out allocations over multiple periods.”
The pace of deployment will remain flexible. “If there are good opportunities we may deploy more quickly. If markets look more challenging, we could adjust the phasing.”
Evolution along the glidepath
Mercer is clear that the initial vehicle is not designed for members approaching retirement. “Our private markets vehicle is very growth focused,” Lewis says. “It’s not necessarily appropriate for members moving into retirement and beyond.”
Over time, Mercer expects to introduce more defensive private markets exposures – potentially private debt, and core or core-plus real assets – for older cohorts. Meanwhile, venture capital may also be added within the growth phase.
As members approach retirement, private markets exposure will evolve alongside public markets allocations, becoming more conservative and income-oriented.
Lewis acknowledges that most members will not engage deeply with the mechanics of private markets investing, placing ongoing responsibility on trustee governance.
“Private markets are a very good place to be able to tell good stories,” he says, pointing to renewable infrastructure as a way to make pension investments more tangible.
On regulation, Lewis supports the direction of travel but sees scope for refinement, particularly around permitted links and the treatment of performance fees.
“The industry has got to a good place, with the operational plumbing in place,” he says. “There are some tweaks that would be helpful for the long term.”
For Mercer, the emphasis now is on execution rather than advocacy. “Implementing private markets takes time,” Lewis says. “By 2030, private markets will be much more of a mainstay in the DC investment world.”