Mansion House Accord – What’s the impact?

10 July 2025

What are private markets?

Let’s start by looking at the term private markets. It covers a whole range of investments – essentially any investment that can’t be publicly traded on an exchange. It could refer to private equity, infrastructure, property, private debt or loans, or other unlisted forms of lending. These may be accessed directly, or via pooled funds.

The attraction of these assets is that they’re expected to provide higher returns than their listed counterparts. The theory of this is sound. These assets are harder to value, harder to trade, and less liquid than public assets. Investors want to be compensated for these downsides, and investors are after one thing – returns.

Private markets have indeed provided strong returns in the past. Until early 2022, interest rates had been at rock bottom for more than a decade. This is a good environment for private markets to grow, which is exactly what they did. Over the 25 years to 2024, private equity funds delivered an average return of 13.1% pa, outperforming the S&P 500 index by 4.5% pa.

However, as any good investment adviser will tell you, the past is no guide to the future. As interest rates have risen over the past three years, returns have been bumpier, with analysts suggesting that private markets are yet to find a new normal in this higher interest-rate environment.

Good news for the Government

As far as the Government is concerned, this encouragement for DC providers to invest in private markets is all about boosting the UK economy. As part of the Mansion House Accord, the Government has committed to ensuring a pipeline of UK investment opportunities. These might be infrastructure projects such as solar farms or new hospitals, which should genuinely improve life in the UK. There’s certainly a role for the Government to play in identifying and prioritising projects. But the Government cannot guarantee returns.

Fidelity is one of the DC providers that has not signed the Accord. One of the reasons it cites is that the UK makes up around 15% of global private markets (according to its research), and it doesn’t want to agree to invest 50% of its private market allocation to the UK. Restricting the investable pool by requiring a disproportionate allocation to the UK reduces the likelihood of delivering good returns.

This, I think, gets to the nub of the issue. The Government’s move seems to be about meeting its own aims, rather than improving outcomes for savers. Its priority is to access some portion of the billions of pounds it deems DC providers to be selfishly investing globally, rather than taking a hit on returns for the good of the nation.

DC schemes and private markets

The Accord applies to 10% of assets held across default investment strategies. This doesn’t necessarily mean that every default investment option will have a 10% allocation to private markets. Some providers will retain a simpler default option with listed assets only, and lower fees.

The cost of investing in private markets is higher than investing in public markets – for example because companies and projects need bespoke expert valuations, increasing the dealing cost. Private market funds sometimes have a performance-related fee in addition to regular management charges. Currently, DC defaults have a charge cap of 0.75% pa. If a proportion is invested in more expensive assets, providers might need to find other areas to reduce costs.

Then there’s the liquidity issue. Private assets are often large and/or long-term investments, which cannot be traded with ease. DC providers will need to find ways to invest in these assets such that they can still provide sufficient liquidity for individuals, to meet fund switches and withdrawals and invest incoming contributions.

Having said all this, DC schemes can, and do, already invest in private markets, though allocations and prevalence within default funds vary. Legislation and regulatory changes over the past few years have made this easier, notably with the creation of a new fund structure, the LTAF (long-term asset fund), for this purpose.

Good news for savers?

Private markets offer diversification of growth assets, which benefits investors. These assets are less correlated with geopolitical events and market shocks than public assets are. An allocation to private markets would therefore protect the value of a DC fund somewhat during a wider market downturn (to the extent that the fund is allocated to private markets).

For individuals some time away from retirement, investing in private markets is likely to improve returns, though the impact will be limited.

Over a 25-year period, private markets would need to achieve returns 3% higher each year than the alternative investment option to increase the total asset value by 10%. Not outside the realm of possibility, but also not a given.
Those who are less than 15 years away from retirement are unlikely to see any impact of this change. Default investment strategies typically de-risk between 10–15 years from retirement. This is likely to be the point at which private markets start to be phased out of a lifestyle strategy, due to their higher risk profile and lower liquidity.

The underlying reality, however, is that UK savers aren’t putting aside enough of their income today to fund their retirement. According to the Financial Lives 2024 survey carried out by the Financial Conduct Authority (FCA), 12% of people didn’t know whether they had more or less than £10,000 in their DC savings. 33% said that they had less than £10,000 in combined DC savings pots – worryingly this was also true for 18% of over 55s.

An allocation to private markets may have a marginal impact on savers’ pot value at retirement, but it’s much more important for individuals to make sure they’re saving enough in the first place, and that their investment strategy suits their own circumstances. Employers have a crucial role to play here, by educating employees and supporting them to understand and engage with their DC provision.

Limited positives overall

The Mansion House Accord is the Government’s way of accessing pension scheme assets and putting them to work for the UK. The impact on affected individuals is likely to be positive, but small. The Government needs to overcome some hurdles to make this more achievable, most importantly by creating valuable, attractive opportunities – which are competitive with global private markets – for DC schemes to invest in.

Individuals aren’t sufficiently engaged with their pensions, and it’s time for the Government to undertake a wider review of the pensions landscape, including an increase in auto-enrolment contribution rates to improve retirement outcomes for future generations. Otherwise, we’ll have a real crisis on our hands.

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