Grasping the Private Markets Opportunity

Accessing Private Credit for UK Defined Contribution Savers

07 June 2024

2 min read

David Hutchins, FIA| Portfolio Manager—Multi-Asset Solutions

Henry Smith, CFA| Investment Strategist—Multi-Asset Solutions

Inigo Fraser Jenkins| Co-Head—Institutional Solutions

What You Need to Know

Historically, UK DC pension plans have struggled to invest in private markets. But today, new investing approaches can enable DC savers to access the return potential of markets such as private credit.

US$ 11.7 trillion

Total assets in private markets

as of 30 June 2023

2% p.a.

Average illiquidity premium

of private credit over public credit

0.4% p.a. *

Potential long-term return enhancement

after fees for DC savers from a material allocation to private credit

*Historical analysis and current forecasts do not guarantee future results.

Read White Paper

Executive Summary

It’s getting harder for UK defined contribution (DC) savers to accumulate realistic amounts of capital for their retirement. Prospective real returns from most asset classes look unlikely to match those of recent years. And the cost-of-living crisis is making it harder for savers to maintain their current pension contributions, let alone increase them in future. How can DC savers get ahead?

At AB, we believe that allocating to private assets can help make a meaningful positive difference to DC savers’ returns over time. As long-term investors, DC savers can and should benefit from the additional returns associated with the illiquidity premium, in our view.

In this paper, we address private assets with a focus on private credit. Specifically:

we set out the practical problems with and hurdles for DC savers investing in illiquid assets and explain the solutions we have developed for investors in our own DC target date funds (TDFs). These funds already include allocations to private equity and sustainable infrastructure. We explain how we have built on that experience to enable us to allocate to private credit too.
we show why and how DC portfolios can allocate to this asset class, and we assess the value such an allocation can add in terms of members’ annual returns and compound growth in capital over time.
we illustrate how DC private credit allocations can be tailored to meet the needs of specific age groups at realistic fee levels.

To overcome the challenges of investing DC savings in private assets, it’s essential to use appropriate investment vehicles. Throughout the paper, we show how TDFs can incorporate complex asset classes while remaining simple for fiduciaries to use and easy for members to understand.

Read White Paper

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

About the Authors

David Hutchins, FIA

David Hutchins is a Senior Vice President and Head of AB's Multi-Asset Solutions business in EMEA. He is responsible for the development and management of multi-asset portfolios for a range of clients. Hutchins joined the firm in 2008 after spending two years at UBS Investment Bank, where he was responsible for devising and delivering innovative capital markets risk-management solutions for pension schemes. Prior to that, he spent 13 years at Mercer, where he served as a European principal and scheme actuary, providing trustee and corporate advice to a range of UK pension funds and their sponsors. Hutchins holds a BSc in mathematics and a PGCE from the University of Bristol. He has chaired the Investment Management Association's Defined Contribution Committee and formerly chaired the defined contribution industry working group for the UK government's "defined ambition" project. Hutchins is a Fellow of the Institute and Faculty of Actuaries. Location: London

Henry Smith, CFA

Henry Smith is a Vice President and Investment Strategist on AB’s Multi-Asset Solutions team. He is responsible for the product strategy and communication of AB’s UK defined contribution, custom multi-asset and sustainable multi-asset solutions. Smith joined the firm in 2019, following more than two years at Lane Clark & Peacock, where he provided investment, research and governance advice to a range of UK defined contribution pension schemes. Before that, he worked at Capita Employee Solutions, where he advised both UK defined contribution and defined benefit pension schemes. Smith holds a BSc in financial economics from the University of Essex and is a CFA charterholder. Location: London

Inigo Fraser Jenkins

Inigo Fraser Jenkins is Co-Head of Institutional Solutions at AB. He was previously head of Global Quantitative Strategy at Bernstein Research. Prior to joining Bernstein in 2015, Fraser Jenkins headed Nomura's Global Quantitative Strategy and European Equity Strategy teams after holding the position of European quantitative strategist at Lehman Brothers. He began his career at the Bank of England. Fraser Jenkins holds a BSc in physics from Imperial College London, an MSc in history and philosophy of science from the London School of Economics and Political Science, and an MSc in finance from Imperial College London. Location: London

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