Defined contribution schemes in the UK may soon be allowed greater access to private markets following proposals from the Department for Work and Pensions.

Under the consultation, published on 6 October, the UK government plans to remove performance fees from the charge cap applied to DC schemes – which are constrained by an annual 0.75 percent charge cap on assets under management and administration. This has acted as a barrier to accessing certain asset classes that charge a performance fee, including private equity, growth equity and venture capital.

DWP noted in the consultation paper that the draft regulations are not intended to reduce the bargaining power of DC schemes to demand alternatives to performance fees. Instead, it seeks to “ensure open dialogue between the trustees and the fund manager on the appropriateness of the performance-related fee structures and their value to scheme members”.

Joanna Asfour, global head of consulting relations and managing director at Partners Group, welcomes the progress being made, noting that “removing performance fees from the charge cap will help broaden access to private markets for DC investors and result in a level playing field for all”.

She adds: “Private markets [have] direct relationships with companies and can therefore have considerable influence over driving ESG initiatives. This aligns with the long-term investment horizons and sustainability goals of UK pension schemes.”

BVCA director general Michael Moore says the moves will “offer future UK pensioners access to the strong, long-term returns generated by PE and venture capital funds and provide an important new source of capital to invest in UK businesses”.

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