Pensions and Private Markets

Pension portfolios have grown increasingly complex over the years. Part of this complexity is the inclusion of private market assets which have helped provide access to additional and/or more diversified sources. Northern Trust's 2026 Asset Owners in Focus study shows that current private markets allocations for EMEA pension funds average 20.0% of total assets, while target allocations average a slightly lower point at 19.3%. For global pension funds, allocations fall slightly lower at 18% with a 19.5% target. However, private market assets are complex investments to hold and manage because of their high illiquidity, their manual servicing nature, and their opaque data views.

Another trend facing pension plans is the question of derisking. After years of positive returns and healthier funded portfolios, data shows that many are evaluating—and in some cases acting on—their healthy funding status and opting for pension risk transfer (PRT) and pension derisking initiatives. According to our study, 62% of EMEA pension respondents are either evaluating pension risk transfer or pension derisking strategies or have already taken derisking action – for global pension respondents specifically, this falls to 50%.

So how can investment and operational teams balance the return potential of private assets with the need to reduce risk and maintain flexibility? The answer comes down to employing strong frameworks across liquidity, risk and data.

Liquidity as a critical component of liability management

Liquidity has become a more important strategic consideration for pension funds, with 62% of EMEA respondents reporting that liquidity has grown in importance over the last 12 months (versus 60% of global pension funds). This dynamic becomes particularly important as private market allocations become more deeply embedded within portfolios. While private assets may support long-term return objectives, institutions must balance those long-term commitments with near-term funding needs, capital requirements, and changing liability profiles. The ability to maintain flexibility while managing these competing demands is becoming an increasingly important differentiator.

Among those reporting increased importance, the changes are already visible. Seventy-one percent of global respondents have invested in lower-risk short-term cash vehicles, 42% have increased cash allocations, 38% have expanded bridge loan facilities, and 46% have strengthened counterparty risk monitoring.

Collectively, these findings suggest that liquidity is increasingly viewed as a strategic portfolio consideration rather than solely a treasury function.

For pension funds pursuing derisking objectives, liquidity plays an important role in supporting benefit obligations, maintaining portfolio flexibility, navigating periods of market stress, and preparing for potential liability-management activities. In many ways, liquidity has become an essential link between the asset side of the balance sheet and the liability commitments plans must ultimately meet.

Risk management is evolving from asset oversight to total-portfolio oversight

As noted, pension funds are not simply weighing whether to increase or reduce their private markets allocations. They are considering how those allocations can continue to support long-term return objectives while still preserving the flexibility needed to manage liabilities, liquidity demands, and potential derisking activity.

Risk management is what helps bridge those objectives. For plans with sizeable alternatives allocations, flexibility depends not only on whether assets can generate returns, but also on whether investment teams can analyze the liquidity profile, valuation dynamics, concentration risks, and liability implications of those holdings within the broader portfolio. This is especially important for private markets, where longer lockups, less frequent valuations, and more manual servicing requirements can make it harder to quickly assess how portfolio decisions affect funded status or future transaction readiness.

The survey findings reinforce that point. Liquidity risk assessment ranks among the top three risk metrics for 46% of EMEA pension respondents (48% of global pension respondents), underscoring that plans are placing greater emphasis on how portfolio exposures can be managed under changing market and liability conditions. That does not mean liquidity risk is only a private markets issue. Rather, it suggests that as alternatives become a larger and more established part of pension portfolios, risk oversight must become more connected across public assets, private assets, cash needs, and liability objectives.

In this environment, risk management is less about limiting alternatives exposure and more about making that exposure sustainable. Pension funds that can evaluate private markets within a broader risk framework will be better positioned to pursue return opportunities while maintaining the flexibility needed to support benefit obligations, respond to changing funded-status dynamics, and prepare for potential derisking or risk-transfer decisions.

Data quality and integration have become foundational to private markets oversight

Managing private markets within a liability-aware framework requires timely, accurate, and connected data. Survey findings suggest many global pension funds continue to face challenges in this area. Thirty-eight percent cite timely, accurate, and appropriate data as a top obstacle to agile decision-making, while another 38% identify increasing risk-management complexity as a leading internal investment challenge.

Private market investments can amplify these issues because information often arrives from multiple managers, across different reporting cycles, formats, and valuation methodologies. This can create operational complexity for pension funds attempting to monitor portfolio exposures, manage commitments, assess liquidity needs, or evaluate potential liability-management decisions.

The survey highlights several data-management challenges that sit at the center of this issue. In EMEA specifically, accuracy of data emerges as the top data challenge, cited by 67%. Looking at global respondents, 58% of respondents cite data accuracy as a challenge, while 53% point to integration across sources and another 53% identify data timeliness as a concern. The growing importance of these factors suggests pension funds increasingly require an integrated view of risk, liquidity, and performance across both public and private assets. As private markets and liability-management objectives become more interconnected, data quality becomes less of a reporting concern and more of a strategic requirement.

Institutions that are able to establish stronger data foundations will be better positioned to evaluate investment opportunities, monitor portfolio risk, support liquidity planning, and make informed decisions as market conditions and liability objectives evolve.

Balancing the next phase of pension investing

Private markets helped many pension plans improve funded status and pursue long-term return objectives. Ironically, that success is now helping create a new set of challenges that pension funds must balance.

As more plans evaluate pension derisking and pension risk transfer opportunities, portfolio decisions are increasingly shaped by liquidity requirements, liability-management objectives, and the flexibility needed to respond to changing circumstances. These considerations are becoming just as important as return generation when determining how portfolios should be constructed and managed.

The findings suggest pension funds are not retreating from alternatives. Rather, they are becoming more deliberate about how those investments fit within the broader portfolio.

The question is no longer whether private markets can deliver returns, but how effectively those allocations can coexist with increasingly mature schemes and growing demands for portfolio flexibility.

As a result, the future of pension investing may be defined less by alternative asset allocations themselves and more by how successfully institutions balance liquidity requirements, risk management approaches, and access to high-quality decision-making data.