We believe private market allocations are not just an alternative but an essential component for DC plans in today's dynamic environment.
In brief
- The evolving global landscape is posing significant challenges to the traditional 60/40 portfolio, making it increasingly difficult for DC investors to achieve the best possible outcomes for members if allocating solely to public markets.
- Alternatives offer diversified income streams, inflation protection, and enhanced returns through opportunities not available in public markets. Previously constrained by regulation and cost, trustees now benefit from a more supportive environment for accessing illiquid and alternative investments.
- DC members have historically missed out on investment opportunities available to their DB counterparts. The industry-led Productive Finance Working Group (PFWG) is working to ensure that DC schemes have access to a wide range of investment opportunities to help members reach their retirement savings goals.
- There remain a number of challenges which DC investors will face when allocating towards private markets, including increased cost, liquidity constraints and how to appropriately educate trustees and members on these new asset classes.
The world is evolving in ways that challenge the risk-adjusted returns investors might achieve by allocating solely to public market assets. We identify three key changes that require alternative asset solutions: Higher and more volatile inflation, the changing structure of capital markets, and the market's ambitious environmental, social, and governance (ESG) goals.