First published on corporate-advisor.com

Pension providers are now looking beyond LTAFs when it comes to innovative private markets investments says Joshun Sandhu, head of investment solutions & partnerships at Mobius

Last week’s announcement that Smart Pension has made a strategic investment into two Octopus Energy Generation funds is more than just good news for clean energy, it also shows how UK pension investments are evolving. 

Backed by Rachel Reeves, the deal includes the UK’s first commercially funded ground source heat pump network in South Wales. This deal is about innovation, not just in energy markets, but through the way pension funds can now invest in these infrastructure opportunities.

These investment are not through LTAFs (Long Term Asset Funds). They are Luxembourg-domiciled vehicles, one open-ended and one closed, with no daily liquidity. In other words, this is the kind of structure most wouldn’t expect to see in a DC pension default. And yet here we are.

Making complex, alternative structures investable for DC defaults doesn’t happen by accident. It takes appetite, expertise and the technology to bring it all together.

Unlocking access through new thinking

Today, most large DC schemes invest through unit-linked insurer platforms. These platforms sit between the scheme and its investment options but most are vertically integrated, offering in-house private market solutions including LTAFs launched by their own asset management arms. This excludes access to a range of external strategies.

The result is limited choice, reduced competition, and innovation that struggles to scale. This is especially problematic as schemes move further into the more nuanced, higher-stakes world of private markets.

But this approach brings open architecture, conflict-free governance, and forward-thinking technology together, enabling a clean energy infrastructure deal like Smart’s to become part of a DC default fund.

Technology as the difference-maker

Behind the scenes, advanced fund technology does the heavy lifting. The ability to blend liquid and illiquid assets into a single vehicle that meets daily valuation and cashflow requirements is essential. What’s needed is an infrastructure that allows for automated rebalancing, intelligent top-ups to private markets and precise liquidity management. This keeps control where it belongs, rather than handing liquidity decisions to private market managers who are potentially not set up to handle them and who would charge a premium to do so.

When liquidity risk is managed centrally and intelligently, trustees can focus on strategy. They are free to choose from the broadest possible investment universe rather than being limited by legacy systems or conflicted commercial incentives.

LTAFs are not the only answer

The LTAF is a welcome step forward for the industry. But it is not the only option. Many of the barriers to accessing private markets do not stem from regulation, but from a lack of curiosity, limited operational flexibility, or an unwillingness to try new approaches.

Permitted links rules already allow for more than many platforms acknowledge. The problem is not necessarily with the rules themselves, but with how they are interpreted and applied. Too often, ambiguity becomes a reason not to act rather than as a signal to innovate.

With the right infrastructure in place, many high-quality, proven private market strategies can be implemented today. It requires collaboration, confidence, and a shared willingness to overcome the structural frictions that have held the market back.

Looking to the future

Trustees deserve more than a narrow set of pre-approved options. They should have the freedom to allocate to best-in-class strategies and the operational support to implement their decisions effectively.

When clean energy infrastructure can be included in a DC default fund, it shows that the aims of the Mansion House Accord and the Leeds Reforms are absolutely achievable.

The LTAF is part of the solution, but the journey does not end there. Real progress will come from an ecosystem that embraces experimentation, shares knowledge freely, and works across boundaries.

This is why we are celebrating the Smart Pension and Octopus Energy news. It’s a development driven by curious and collaborative minds and is helping turn bold ideas into real-world pension investment solutions.