XPS Pensions Group has come up with a new approach for small and medium defined contribution schemes to invest more in private markets.
The consulting and administration business has said it will target a 20 per cent allocation to private markets within default strategies.
This will be available for defined contribution schemes with assets of at least £30mn.
The firm said it comes in response to the 2023 Mansion House reforms and the pension industry's ambition for more DC schemes to incorporate private market assets into their arrangements.
Mark Searle, head of DC investment at XPS, said the approach will be the first to provide wide-scale access to illiquid assets for small and medium sized defined contribution schemes.
He said: "There is a huge opportunity for DC schemes to benefit from growth in private markets, but until now, this has only been accessible for the largest schemes.
"This approach is the first-of-its-kind to provide access of this magnitude to illiquid private market assets for mainstream small and medium sized DC schemes.
"We set out with the ambition of creating an approach that allows as many DC members as possible to benefit from the merits of private market assets, without having to wait for a change in regulation from the government.“
A scheme can invest in the approach via a platform provider who manages a blended fund to maintain the target allocation.
It involves additional fees of around 0.4 per cent a year, compared with investing in a traditional liquid strategy.
Chief investment officer at XPS, Simeon Willis, added: "What’s unique about this approach is that each scheme will have its own arrangement, combining liquid and illiquid assets.
"This gives them autonomy over choosing funds and how the allocation changes through time, and crucially maintains independence from other investors.
"This new approach will give schemes substantive exposure to illiquid assets, without the potential for other investors to eat up their liquidity buffer for breakfast."
XPS expects the additional net return could increase a typical member’s pot by 7 per cent.
The firm also said it has the scope for additional ESG impact through targeted private market investment.
tara.o'connor@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
