Master trusts are planning to ramp up illiquid investments, with substantial proportions earmarked for the UK, new research suggests. A separate study found global investors had greater appetite for infrastructure and property last year but were more cautious about private equity and private debt.

Infrastructure, property and private equity are the most popular asset classes within illiquid assets for defined contribution master trusts, accounting for over two-thirds of illiquids, the research by consulting firm Isio found, but noted that domestic allocations are contained mainly within infrastructure and property, while UK private equity allocations are “rare”.

Still, master trusts intend to allocate between 21% and 30% of illiquids domestically - a third even aims to invest 40% or more in the UK.

Nest and the People’s Pension, the two largest master trusts, are among those that have publicly said they intend to invest in private markets. Nest plans to have 30% of assets in private markets by 2030 and recently took a stake in Australian infrastructure manager IFM Investors, which also sits on an investor taskforce set up to support the government's infrastructure ambitions. People’s aims to have up to 10% of growth pool assets, about £4bn, allocated to private markets by 2030.

“Although we believe allocating to illiquid assets has the potential to improve member outcomes, this will only happen with effective implementation, with approach to ramping up, managing liquidity and the appropriate balance between internal and external management being key areas to watch out for,” said Isio partner George Fowler.

Master trusts predominantly rely on external expertise for illiquid assets, according to the research, with the majority managing less than 20% of illiquid allocations in-house. Isio said the choice between internal and external management is often influenced by cost, scale and governance requirements, noting that some providers use a mix of both for their illiquid portfolios.

While Isio found that master trusts are about to buy up illiquids, separate research by consultancy Bfinance suggests demand globally reduced last year. Private market mandates declined to 43% of all searches in 2024, down from 58% in 2022, the consultancy found. It said this reflected reduced investor appetite for private equity and private debt, which were being approached with caution, while real asset mandates surged, making up 42% of private market searches.

This rise shows “renewed interest in infrastructure and alternative real estate, as institutional investors sought attractive valuations and repositioning in 'alternative real estate' sub-sectors aligned with current economic trends”, according to Bfinance.

The UK government is keen to see private investors help fund UK infrastructure among others, and has proposed minimum size requirements for master trusts in the hope that larger funds will invest more in 'productive finance'. It also recently asked for input as it drafts its 10-year infrastructure strategy and will introduce a planning and infrastructure bill in the spring.