Closing the fiduciary blind spot with privateMetrics®—True private market indices.

UK pension schemes are committing up to 10% to private markets under the Mansion House Accord. This shift will require tools and data to select and benchmark private asset funds.

A revolution is underway: UK pension schemes are committing up to 10% to private markets under the Mansion House Accord, representing a historic £400+ billion shift in capital allocation that will reshape Britain’s investment landscape for decades to come. This is an increase from the Mansion House Compact, where the Compact focused on a 5% allocation to unlisted equities without a domestic requirement. This shift will require tools and data to select and benchmark private asset funds.

Benchmarking funds and fund managers using peer group benchmarks is fundamentally flawed: Traditional quartile rankings fail to distinguish between market-driven returns and genuine manager skill, creating dangerous blind spots that mask underperformance and justify unjustifiable fees. privateMetrics® indices are built using a bottom-up approach and create the missing market standard by isolating pure market outperformance (alpha) from a fund’s beta (market risk), enabling truly informed investment decisions. This supports not only improved manager selection but can also help tie compensation to genuine value added (alpha), reducing fees.

Manager selection trumps asset allocation as the first order question: Our analysis of 600+ buyout funds reveals that there is a huge performance gap between top and bottom-tier managers, overshadowing any potential gains from strategic asset allocation decisions alone. Picking the wrong managers (or their funds) can have material consequences for an individual pensioner, leading to a shortfall in savings when reaching retirement age.

The cost of inadequate benchmarking is considerable: Failing to identify and select managers with genuine alpha-generating capabilities may lead to an individual pensioner having substantially less wealth at retirement age. Based on our case study of an individual DC plan participant, this shortfall can range from £215 thousand to £339 thousand by retirement. This could reduce monthly pension draws by £1,300 to £2,000. This case assumes the individual invests in a target date solution, like NEST Pensions’ default option, but with a private equity sleeve, under varying alpha scenarios.