The argument is that it is earlier stage companies that need to money to invest, to grow, and that more and more companies, who are better established, are choosing to move away from the public markets, as there is more capital and the conditions are less onerous than in the public arena.
Real benefit
But would these investments be of real benefit to scheme members?
When anyone in the investment community talks about investing in illiquid assets - which DC schemes are currently limited from doing by FCA rules - there is an expectation of the 'Illiquidity premium'.
Simeon Willis, chief investment officer at pension consultant XPS, says: "It's very similar in concept to the equity risk premium: nobody knows [the actual value]. What you can do is look at how equity has outperformed cash over the same period of time."
However, to drill down further, there are certain working assumptions the pension world uses when calculating the benefits.
Neil Maines, a senior consultant at XPS, who has worked for Australian pension funds, says that at the safer end of the spectrum, such as property and established infrastructure, the returns would be similar to typical equities, meaning approximately cash-plus 2-4 per cent.
"The main reason for adding this private market exposure is not to increase the expected return, it's to improve diversification."
This has been seen in Australia, when during Covid, nervous DC savers moved into cash, even with more diverse assets available; in the UK it could be worse with fewer alternative assets currently to move into.
The more adventurous end of private markets, such as private equity, VC and not fully operational infrastructure, might deliver returns of around cash plus 4 per cent to 10 per cent.
Plain sailing?
However, evidence suggests that it is not all plain sailing in the private markets world.
According to McKinsey, the private markets sector is having something of a slowdown, driven by higher financing costs, lower valuations and a slack M&A environment, so that PE funds are taking longer to dispose of their investments, returns from which go back to investors.
In "Private markets: a slower era" published earlier this year, the consultancy said that global fundraising fell 22 per cent across the private market sector last year, while performance has not been especially strong - private equity delivered a net internal rate of return of 2.5 per cent for the first nine months of last year.
Many will point out that it is a long term game. In the UK, the Universities Superannuation Scheme, which is the largest private pension scheme in the UK has been investing in private markets for almost 20 years.
