"In a large developed economy, there are hundreds of thousands of businesses that never [take that route] and that's where private equity plays."
It has been allocating to private credit since 2019, and infrastructure since 2021; the fund is 2 per cent to 3 per cent allocated to private equity.
Part of the problem is that many DC schemes have been set up to offer a daily liquidity profile, to allow investors to move in and out of different funds on a regular basis.
Glancy at Scottish Widows says: "It's evolved from the the unit-linked retail pensions. That regime was designed for people who wanted to go in and out and select their own pensions and work with financial advisers and move money between funds."
However the current DC system, with AE as its foundation, relies on the exact opposite to function.
Glancy says: "With AE, they're using inertia, and professionals are running [the money] on their behalf. You then have to question why these assets are priced on a daily basis".
There is also the practical challenge of having the decision-makers, who negotiate with pension fund providers, focus on the fees for running the pension scheme, often well below the 75 bps charge cap.
Glancy adds: "If you're a master trust provider, the people who make these decisions are finance directors or managing directors and used to beating people on price, and they have to report to the board. It's easier to get their bonus if they say they shaved 2bps off the price."
But this then restricts the pension fund manager even more in terms of what they can offer, Glancy explains: "The employers are obsessed by price.
"Already there's a charge cap of 75bps, if you wanted to win a large pension scheme mandate,they wouldn't be prepared to pay more than 13 bps.
"If you look at Australia where they are investing in a much wider range of assets, they are charging 0.95 to 1.05 per cent. At 13bps [to the manager] you can only invest in passive trackers.
"We used to have commercial property in default funds but that had to get swapped out because of the race to the bottom on price."
Impact on price?
In fact, some in the pension industry think allocating to private markets would not have a material impact on price.
Legal & General Investment Management is launching a default fund later this year, which will include allocation to a new private markets fund, and Jesal Mistry, headof DC investments at L&G, is confident this default fund will stay well below the 75bps charge cap.
