Pension funds must ’embrace’ private markets to fuel growth
UK pension funds must stop hiding in public equity benchmarks and ‘embrace’ private markets in order to meet their obligations and accelerate economic growth, the group chief executive of one of the UK’s largest pension providers has argued.
Andrew Evans, co-founder and group CEO of Smart Pension, urged providers to steer away from public markets and look for opportunities elsewhere, arguing a failure to do so ultimately fails members in the long run.
In an interview with CityAM, Evans said: “Pension funds historically…don’t have necessarily all the trustees and investment professionals which can monitor private markets or venture capital.
“So I think sometimes the industry can hide behind fiduciary duty…in the long term it benefits the members so it’s prevalent upon the industry to start to make much more strides into understanding how to allocate.”
Smart Pension is one of the UK’s faster growing master trusts, managing the pensions of two million savers, with organic growth of £1.6bn a year driven by saver contributions.
Mansion House Accord
Smart Pension, which has just surpassed £10bn in assets under management (AUM) – putting it ahead of the 2030 government AUM timeframe for mandatory thresholds – credited its growth to its allocation in private markets alongside ongoing acquisitions.
The group completed ten pension scheme consolidations in the last decade.
Under the Mansion House Accord, to which Smart Pension is a signatory, providers must allocate at least 10 per cent of defined contribution funds to private markets by 2030.
Five per cent must be allocated in the UK.
But Smart has already committed to allocating 15 per cent of its default fund to private markets, already surpassing the five per cent benchmark.
Evans said: “We’re really bullish on private market allocations and like UK bias as well.
“There’s clearly a nervousness…but you also see that in the long term that these funds do better than a lot of public market benchmarks. The pension market should be trying to embrace this and not be fearful.”
Digital assets and UK innovation
Evans also urged pension funds to look into investing in digital infrastructure, including data centres, instead of immediately running to invest in specific AI platforms, as investing in the physical infrastructure can typically offer less risky returns.
Evans said: “You don’t always want to figure out whether ChatGPT or Anthropic or Gemini or others are going to be the winners.
“But if you actually invest in the underlying data centres, then you have the benefit that whichever one scales and grows, you’re actually investing in the infrastructure against that.”
He also rebuffed claims that the UK was not fit for innovation, hailing London’s venture capital market as one of the “top two or three” in the world.
He said: “The venture capital network in London…clearly outperforms standard public markets on a long-term basis, so the opportunity to try and access that is obvious.”
But he noted that most of the capital being deployed into the sector comes from foreign investors, with UK investors still somewhat skeptical of the country’s capabilities.
Government policy
While many industry figures have criticised the government for its policies and actions surrounding pensions, Evans does not share this sentiment.
He said: “I think the government is trying to create the framework for us… the government’s doing their side of the bargain.”
Evans acknowledged the pace of reform over the past two years, with the government also maintaining focus on stopping domestic master trust capital flowing out of the UK, through consolidating the market.
He added: “It’s a good thing, and you have got to applaud the government for pushing this through, and make sure that these smaller funds… there’s still going to be a very competitive market, there’s still going to be nine to 12 large funds all competing to try and find ways to invest or to ensure that their members are happy.”
Pensions minister Torsten Bell admitted that the “fragmented pensions system has meant people’s savings are not working hard enough” and that the Pension Schemes Act will support “a pension landscape made up of bigger and better schemes” that will push people into a better retirement.
Chief executive of Smart UK, Jamie Fiveash also said the act would assist in “continued strong organic growth” alongside “emerging acquisition” possibilities.