Make the most of private markets for With‑Profits and Unit‑Linked funds 

With‑Profits funds generally have greater flexibility to allocate to illiquid assets such as private credit, private debt and private equity. We think that flexibility makes With‑Profits a natural home for scaled private allocations because its more stable capital and shared risk can absorb the time and active allocation decisions these assets demand. Even so, insurers typically accept there is a “natural” cap on private exposure — the right fit will always be fund‑ and balance‑sheet specific.

Unit‑Linked products are moving more cautiously toward private markets. Where insurers choose to include privates in Unit‑Linked portfolios the emphasis is on access, liquidity and operational robustness. Fund structures such as LTAFs or ELTIFs are generally preferred, with concentration limits and exceptionally rigorous due diligence to meet regulatory expectations.

Co‑investments are increasingly attractive because they can reduce fee drag and improve alignment of interests, but they are not a panacea. While co‑invests can materially lower total costs, they introduce governance, legal and regulatory complexity that must be designed into the solution from the start. This is particularly true for Unit‑Linked products where permitted links, disclosure and suitability tests can constrain adoption.

On equities, there is a pragmatic shift underway. Many insurers are reducing UK equity exposure while wrestling with concentration risk in global markets and the turnover costs that can accompany a full reweighting. Phased transitions and careful implementation are often the least‑risk routes when rebalancing equity exposure across portfolios.

To turn this into action, you could consider a structured, pragmatic approach by segmenting the balance sheet and product set so you can identify which assets are best housed in With‑Profits versus Unit‑Linked, and set clear caps and governance rules. Build a private markets playbook that covers manager selection, co‑investment pipelines, fee alignment, legal terms and a regulatory checklist that addresses Consumer Duty and suitability.

Stress test allocation choices against downside liquidity shocks to understand how different allocations affect smoothing and unit pricing. For Unit‑Linked access routes, design due diligence standards and concentration limits. Establish co‑investment governance up front so you can assess where co‑investments are 

Mercer can help operationalise this. We can run a short diagnostic that reviews your portfolio, governance and product rules to show where With‑Profits can absorb additional private exposure and where Unit‑Linked needs tightened design. We can design co‑investment and private credit playbooks that map to your regulatory and Board constraints and identify potential weaknesses in private credit allocations. We can help implement LTAF/ELTIF structures, perform manager due diligence and support operational onboarding so Unit‑Linked access meets suitability and liquidity requirements.

This does not constitute an offer or a solicitation of an offer to buy or sell any financial instruments or products. Please discuss this further with your dedicated Mercer consultant for individual guidance or advice before entering any contract.