Savers in defined contribution (DC) pension funds could be missing out on investment opportunities as companies increasingly favour private markets to raise capital, a study has found.

A report by the CFA Institute this month found companies were delaying initial public offerings (IPOs) to instead take advantage of a stockpile of investor cash waiting to be deployed privately.

Sviatoslav Rosov, director in capital markets policy at the CFA Institute, said: “Individuals are being told to save for their retirements by investing in the public markets at a time when companies are increasingly preferring to avoid or defer a public listing.”

The institute said the median time for US companies to move to an IPO had risen from an estimated 3.1 years in 1996 to 7.7 years in 2016.

While not listing publicly, these companies are increasingly raising capital in private markets. The CFA Institute reported that a median of $12.2m (€10.8m) was raised prior to IPO in 1996, compared to $97.9m in 2016.

These private markets have been fuelled by record levels of ‘dry powder’, or uninvested cash, which reached a record $1.8trn in the first half of the year, according to consultants McKinsey. The vast majority of the money in these markets came from institutional investors, such as defined benefit pension funds, endowments or sovereign wealth funds.

With a long time horizon, these investors are able to take on these relatively illiquid holdings, but due to demands on short-term portfolio switches, few private investments have been accepted as options for DC savers.

Rosov said this wait could deprive them of the ability to participate in high-growth business models and further promoted the sense that markets were being operated for the benefit of “insiders”.

He said the solution would be to allow savers to invest in private markets through their pension funds or a similar professional intermediary, as long as they were aware of the risks and necessary time horizon.

Few DC platforms currently offer private market investment funds due to their illiquid nature sitting at odds with the necessary ability of savers to move in and out of the fund.

However, in June this year, the Investment Association (IA) called for measures to allow DC pension funds greater access to illiquid assets, including infrastructure and property.

At the time, the IA said it was critical that “every saver has the ability to access the full range of investment opportunities”, and that since 2012, the investment universe had “fundamentally changed”.

Mark Fawcett, chief investment officer of the UK’s National Employment Savings Trust, which launched a fund that invests in relatively illiquid instruments for DC investors, also urged fund managers to innovate more in the space to avoid missing a “massive opportunity”.

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