Public appetite for private markets in pensions has fallen 13 percentage points in a single year, even as Aberdeen Investments’ research shows the asset class has significantly outpaced every major traditional alternative over the past 25 years.
Aberdeen commissioned Opinium to survey 3,000 UK adults on their attitudes to private markets in pensions and two-fifths said they would be happy with their pension including exposure to the asset class. A year earlier, that proportion stood at 53%.
Younger adults are considerably more receptive than older ones: exactly half of 18 to 34-year-olds are open to private markets in their pensions. That figure drops to just 42% among the 35 to 54 age group and to less than a third among those aged 55 and above.
Nalaka De Silva, head of private markets solutions at Aberdeen Investments, said: “It is clear there is more work to do in highlighting the significant benefits private markets can offer.”
To contextualise the sentiment data, Aberdeen examined how private markets have performed relative to conventional asset classes since 2001, a period that includes the dot-com bust, the 2008 financial crisis, the pandemic and a series of geopolitical upheavals.
Rather than looking at a single subsector, which would distort the picture given the divergent behaviour of different private market segments, the asset management house constructed an equally weighted composite across five areas: private equity, infrastructure, real estate, private credit and natural resources. This approach reflects what a genuinely diversified private markets allocation might look like in practice.
The composite returned 845% over the 25-year period. Global equities returned 359% over the same timeframe, a conventional 60/40 portfolio 309% and global bonds 190%. However, the private markets composite carried a higher risk profile than any of the traditional alternatives.
“Over the past 25 years, a period encapsulating multiple market shocks including wars, tech crashes and the global financial crisis, performance data shows that private markets have significantly outperformed global equities, fixed income and traditional 60/40 strategies. However, this story isn't yet well understood by the public,” De Silva said.
“But the risks entailed by private markets is very different and we are not suggesting that traditional portfolios of equities and bonds should be replaced. Every private market sub-segment has its own dynamics, so diversification is essential in mitigating risk within private markets as it is in public markets."
Not all concerns about private markets are misplaced. Aberdeen acknowledged that parts of the private credit market are under genuine stress, though De Silva argued the problems are concentrated rather than systemic.
Private credit is in focus at the moment owing to a surge in investor redemptions. Goldman Sachs predicts private credit funds could see assets reduced by $45bn to $70bn over the next two years if retail investors continue pulling back.
De Silva said: “Current concerns around private credit are clearly warranted but remain focused on a few direct lending areas with valuation and transparency issues, particularly software-heavy exposures. But these troubled pockets are small compared to the wide range of high-quality strategies available.
“From a portfolio construction viewpoint, this is exactly why a diversified exposure across credit and private markets matters – it is better able to tap resilient return streams while reducing reliance on any single segment.”
But strong long-term returns have not translated into broad public access. In its recent Private markets for public good: the opportunities and barriers to democratisation whitepaper, Aberdeen set out the structural frictions that keep most investors away from the asset class.
Liquidity is the most fundamental issue. Vehicles such as Long-Term Asset Funds and European Long-Term Investment Funds are not redeemable on a daily basis, making them incompatible with how most retail platforms and managed portfolio services operate.
Beyond liquidity, the industry lacks consistent standards for reporting costs, making it hard for investors to compare what they are paying. Valuation methodologies vary considerably between managers, limiting transparency, and the absence of robust industry benchmarks makes it difficult to judge performance in any meaningful way.
The policy environment adds another layer of complication. Governments in the UK and elsewhere are actively trying to steer pension capital towards private assets, with the aim of funding infrastructure and bolstering domestic investment. The UK government’s proposed pensions schemes bill includes provisions that could compel pension schemes to allocate to private markets.
Yet investment trusts sit outside the scope of those reserve powers, leaving one of the most established and regulated product structures in the UK at a regulatory disadvantage relative to newer vehicles.
In response, Aberdeen has put forward an eight-point plan for making private markets genuinely accessible to the public, which falls into four broad areas.
On standards and transparency, the firm wants to see a common framework for performance reporting that presents returns in a format comparable to public market funds, including both time-weighted returns and internal rates of return side by side.
It also wants managers to be more forthcoming about what they own, how they manage risk and how they arrive at valuations.
To underpin the latter, it proposes a formal valuation standard for private assets, modelled on the framework that the Royal Institution of Chartered Surveyors provides for real estate, and accompanied by a recognisable quality mark for funds that comply.
On distribution and product design, Aberdeen calls for a collaborative industry effort to make private market funds workable within platforms and managed portfolios designed around daily liquidity.
It also argues that regulation should not favour one vehicle structure over another, since the optimal product will depend on the investor’s circumstances rather than regulatory accident.
On cost disclosure, the firm wants a standardised framework for presenting fees across both funds and funds of funds, making it straightforward for investors to weigh net returns against public market alternatives.
On public understanding, Aberdeen supports the creation of national taskforces to run coordinated education campaigns, alongside a frank industry-wide conversation about the ways in which private market risk differs from its public market equivalent.
“As private markets become a more central part of the pension landscape, it’s important we empower the public with clear, accessible information,” De Silva finished. “If the government wants the asset class to play a stronger role in supporting pensions and better retirement outcomes, education is one of the most powerful levers it can pull.”