Grasping the Private Markets Opportunity

Accessing Private Credit for UK Defined Contribution Savers

07 June 2024

2 min read

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.

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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

This is a marketing communication. This information is provided by AllianceBernstein Limited, 60 London Wall, London, EC2M 5SJ. Registered in England, No. 2551144. AllianceBernstein Limited is authorised and regulated in the UK by the Financial Conduct Authority (FCA - Reference Number 147956). It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of investments in any of the Funds can go down as well as up and investors may not get back the full amount invested. Past performance does not guarantee future results. This information is directed at Professional Clients only and is not intended for public use.