The UK savings and investment landscape is evolving and searching for the illiquidity premium in private assets.

Pension assets remain a major pillar of the investment industry.

Workplace and defined contribution (DC) schemes have been a larger part of the pension market pie than defined benefit (DB) schemes since 2005, and the gap continues to widen. At the same time, retail investors, people increasingly choosing to manage their own long-term retirement plans are growing in number, reflected in the rise of SIPPs and SSAS.

This shift has implications for private equity, private credit, infrastructure and commercial property. Historically, large DB schemes and institutions were the primary investors in these asset classes. With DB in decline, the expectation is that DC pensions and retail investors will step in and increase their allocations. Many industry surveys suggest they intend to do so, attracted by the idea of the illiquidity premium, inflation hedging, diversification and a long term asset to match their future liabilities.

Opening up private assets to a broader group of savers is positive from a financial-inclusion perspective. It also gives investors regardless of size a chance at having a stake in the real economy, local communities and critical infrastructure. But execution remains the challenge.

Private assets have never fitted neatly into the needs of DC pensions or retail investors. Liquidity, frequent pricing, transparency and low costs are structural requirements for DC schemes and private assets, including commercial property, simply cannot behave like public equities for example.

What has changed is not the nature of private assets of course, but the investment industry’s operating system. Advancements in technology, data and operating efficiency have rewired much of the business.

Successfully opening private assets to a bigger and broader range of investors will depend on continued improvements in the investment industry operating system supported by policy, financial education, sound advice and unwavering commitments to consumer duty.

Let’s not rely on the allure of the illiquidity premium alone.