Unlocking Private Markets for DC Pension Schemes and Trustees
DC pension money has, to date, generally avoided investment in private markets, and Cadro’s Co-founder and President Jordan Buck believes that consequently, members are missing out on the chance to invest in 99.9% of companies in the world, including many companies at the forefront of tech development and innovative science. Cadro’s mission is to overcome that limitation.
In the last thirty years the whole world has changed; technology, trends and markets have changed with it – and Cadro believes that the way we invest ought to change as well. In those thirty years we’ve seen a huge growth in the number of companies that are transforming the world, but many are still privately funded.
In the film we hear from Kerry Baldwin of IQ Capital, a deep-tech investor who provides an opinion on the opportunities private markets can offer investors: the UK venture sector is the most developed in Europe, and returns from UK venture are often well beyond those from public markets.
While there is a widely held belief that private markets can be riskier, Gary Smith, a Cadro Senior Adviser, believes that to ignore private markets is in itself a risk. Many private companies offer growth potential, diversification opportunities, and enable chances to invest in the future of this world and, pertinently, the future into which DC pension members will be retiring.
Cadro comprises specialists who want to help guide new investors in accessing these transformational business opportunities. They understand what challenges trustees face, which is why they’re seeking to inform, educate and help anyone with an interest in private markets.
They believe that we currently face a generational opportunity, and that now is the time for trustees to act.
What are private markets?
Private markets are investments in assets that are not traded daily on public exchanges. They can include private equity, venture capital, infrastructure, private credit, real estate and other long-term assets. Unlike public shares, which can usually be bought and sold quickly, private market investments are often less liquid and require a longer investment horizon.
This is one reason they may be relevant for pension schemes. Many pension members are investing over decades, which can create scope to consider assets that are not priced or traded every day. However, this longer-term nature also brings additional responsibilities around governance, valuation, liquidity and risk management.
A good private markets strategy should not simply add complexity for its own sake. It should have a clear role in the portfolio and a clear link to the outcomes the scheme is trying to achieve for members.
Why have DC pension schemes had limited exposure?
Despite their long-term investment horizons, many defined contribution pension schemes have historically had limited exposure to private markets. This has often been due to practical barriers rather than a lack of interest.
Private market investments can be more complex to access and monitor. They may involve higher fees, longer lock-up periods, less frequent valuations and more detailed due diligence than traditional public market funds. DC schemes also need to manage daily dealing, member switching, reporting requirements and value-for-money expectations.
These challenges do not mean private markets should be ignored. They mean trustees and scheme decision-makers need the right framework before allocating. Access should be built around suitability, diversification, transparency, and member benefit.
Potential benefits for long-term savers
Private markets can offer several potential benefits for long-term pension savers. They may provide access to companies, projects and assets that are not available on public exchanges. This can broaden diversification and help portfolios participate in areas of growth that listed markets may not fully capture.
Infrastructure, for example, can provide exposure to long-term projects linked to energy, transport, technology, and essential services. Private equity and venture capital can provide access to companies at different stages of growth. Private credit can offer another source of income and return, although it carries its own risks.
For DC pension schemes, the potential benefit is not only about returns. It is also about building portfolios that are better aligned with long-term investment horizons. Any allocation should still be assessed carefully, including cost, liquidity, governance and the quality of the underlying managers.
Risks trustees need to consider
Any discussion of private markets should include a clear explanation of the risks. Private assets are not suitable for every investor or every portfolio in the same way.
The first risk is liquidity. Private market assets cannot usually be sold as quickly as listed investments, so schemes need to understand how much illiquidity they can reasonably accept.
The second is valuation. Because private assets are not priced continuously on public exchanges, valuations may rely on periodic reporting, models and assumptions.
Costs also need close attention. Private market strategies can have more complex fee structures than traditional public market funds. Trustees should understand the full cost of access and assess whether the expected benefit justifies that cost.
Manager selection is another key consideration. Outcomes can vary significantly across strategies and managers, which makes due diligence, diversification and ongoing monitoring essential. A responsible approach to private markets should balance opportunity with governance, transparency and risk control.
FAQs on Private Markets
What are private markets?
Private markets are investments in assets that are not traded daily on public exchanges. They can include private equity, venture capital, infrastructure, private credit, real estate and other long-term assets.
Why are private markets relevant to DC pensions?
DC pension members often invest over long time horizons. This can make it possible to consider assets that are less liquid (take longer to convert back into cash) but may offer diversification and long-term growth potential.
What are the main risks of private markets?
The main risks include illiquidity, valuation uncertainty, higher or more complex fees, manager selection risk and operational complexity. These risks need to be managed through strong governance and careful portfolio construction. Private Markets are typically more suited to investors with large amounts of spare capital, which they intend to invest without expectation of needing it back for several years.
Should every pension scheme invest in private markets?
No. Private markets should be assessed based on the scheme's objectives, member profile, governance capacity, liquidity needs and value-for-money requirements.
How can trustees assess private market opportunities?
Trustees should review the role of the allocation, the manager's track record, costs, liquidity terms, valuation process, reporting standards, diversification and the expected impact on member outcomes.
This video was produced by Zinc Media in association with the Pensions Management Institute, and features in the PMI's Purposeful Pensions documentary series (Volume 2).
