Dan Mikulskis, The People's Pension
Private markets offer pension schemes an opportunity for diversification and long-term returns, but costs have remained a persistent challenge. High external management fees can cancel out most or all the benefits of the underlying assets without the right approach.
The People's Pension announced its intention to invest up to £4bn in private markets by 2030, making it one of the first UK Master Trusts to commit to private markets at scale. With £32bn in assets, we have the scale to access private markets efficiently and explore the full suite of investment options, including direct ownership, co-investment, and pooled funds.
To manage these investments cost-effectively, we are expanding our investment team, bringing in private markets specialists to strengthen our internal capabilities. This ensures better cost control, investment selection, and long-term value for our members.
We commissioned investment expert Toby Nangle to examine how UK pensions can invest in private markets without being burdened by high fees. His research highlights three key lessons:
First, external management fees could cost UK master trusts £560m–£1.5bn annually, risking more benefit to fund managers than savers without careful structuring.
Second, Canadian and Australian pensions show that internalising private market management cuts costs and boosts returns.
Third, co-investment and direct management can cut costs by up to 60%, saving UK schemes hundreds of millions annually through a hybrid approach.
These insights shape our approach, ensuring private market access is cost-efficient while delivering sustainable returns for members.
Strategic investment in productive assets
Productive assets and their impact on economic growth are central to the private markets' conversation, and pension funds have a role to play in unlocking their potential. To make these investments work effectively, we're focusing on four key fundamentals:
- Prioritise financial returns – Every investment must meet risk-adjusted return expectations, ensuring members' savings are protected and optimised for growth. We will only invest in UK-based assets that offer the best value and never at the expense of returns.
- Broaden the scope of productive assets – While much attention has been given to venture capital, pension schemes should explore infrastructure, real estate, and energy. These established asset classes offer stable, long-term value at the scale required for large master trusts.
- Unlock the supply of assets – Industry alignment and regulatory reforms are key to making quality productive assets more accessible for investment.
- Build internal capabilities beyond pooled funds – Pension funds need internal capacity to assess complex deals. A hybrid model, inspired by Australia and Canada, could foster collaboration and efficiency.
The People's Pension has recently reached the scale where it can start planning a private markets programme, focusing on member value. This long-term strategy requires expertise, careful investment selection, and cost control. Increasing our team and refining our approach will ensure that private markets play a meaningful role in delivering strong, sustainable returns for our 6.5 million savers.
Dan Mikulskis is Chief Investment Officer at The People's Pension
