Germany’s pension system is approaching a turning point. As demographic pressures intensify and traditional investment models struggle to deliver the returns future retirees need, private markets could offer a route to long-term growth. Martina Frisch explores what Germany can learn from pension systems – and the investment capabilities and operational infrastructure needed to turn reform into better retirement outcomes.
Policymakers, pension providers and institutional investors face a common challenge: generating sufficient long-term returns for an ageing population as traditional income sources become less dependable.
Germany’s pension system has long been built on stability, security and prudence. Yet the country already spends between 11% and 12% of GDP on state pensions, a share set to rise as its population ages. Demographic pressure, longer life expectancy and lower expected returns from traditional assets are fuelling debate about how retirement savings should be invested.
Recent pension reforms signal a shift from preserving capital to growing it. Germany’s reformed private pension framework is designed to increase capital-market participation and improve long-term retirement outcomes.
For private markets fund managers, this could be one of the most significant structural developments in Germany’s investment landscape for a generation.
Deutsche Bank Research warns that demographic change is placing Germany’s public pension system under mounting strain, with the retirement-age population expected to increase sharply over the next decade. Meanwhile, conservative allocations have constrained returns. Together, these pressures are strengthening the case for connecting retirement savings more closely with long-term economic growth.
The reforms also give younger people a different way to invest. As Professor Raimond Maurer of Goethe University Frankfurt explains: “It gives younger generations the opportunity to participate early, affordably, and with government support in the long-term return potential of capital markets as part of their retirement planning.”
Germany is not alone in facing the fiscal pressure of an ageing population. France, for example, spends around 15% of GDP on pensions, illustrating the strain that mature, largely state-supported systems can place on public finances.
Canada and Australia point to a different path. Their pension systems combine lower public expenditure – around 4% to 6% of GDP – with deep pools of professionally managed retirement savings. Over time, their investors have built substantial exposure to infrastructure, private equity, private credit and real estate.
Another good example is Sweden’s retirement system which combines public, occupational and private savings, with age-based strategies that give younger savers greater exposure to growth assets before reducing risk later in life. Analysis by Deloitte suggests the average Swede has around 75% of total retirement savings invested in a selection of public and private equity, real estate and infrastructure comprising risk-bearing retirement assets of about €249,000 a worker, compared with around €66,000 in Germany. This “productive capital gap” highlights the additional long-term value that can be created when contributions are invested in diversified growth assets rather than concentrated in guaranteed or low-return products.
McKinsey’s latest Global Private Markets Report reinforces how moves towards a more return-oriented pension framework helps individuals build larger retirement pots over time while creating deeper pools of patient capital for infrastructure, innovation and productive investment. This is why private capital is now a mainstream part of long-term portfolio construction, with private equity, private credit and infrastructure attracting pension investors seeking long-duration opportunities and diversified returns.
Germany’s lesson is not simply to allocate more to private markets, but to develop the capabilities and structures needed to match long-term assets with long-term liabilities.
This interest is already visible among German institutional investors. Research from the Bundesverband Alternative Investments (BAI) shows that German pension plans, pension funds and contractual trust arrangements allocate an average 22.9% of assets to alternatives – slightly above the institutional investor average – with further growth expected in infrastructure and private debt.
Infrastructure equity is expected to see the largest increase in strategic allocations, reflecting demand for long-term, cashflow-generative assets. A recent Preqin study of institutional allocation of capital found that over the period examined, Infrastructure was among the fastest-growing segments, rising from 1.4% of assets under management (AUM) on average in 2021 to 2.4% by 2025, potentially reflecting growing investor demand for assets offering long-duration cash flows and diversification benefits beyond traditional equity and bond markets.
For pension investors, the appeal also includes:
BAI identifies diversification and attractive risk-return characteristics as the main motivations, suggesting private markets are becoming a core part of long-term portfolio construction rather than a tactical allocation.
For private markets fund managers, greater participation from German pension investors could unlock significant long-term capital. It will also create added demands across onboarding, due diligence, reporting, tax, regulatory compliance and investor servicing.
Those demands will intensify as managers serve investors with different mandates, governance requirements and reporting expectations across jurisdictions. Greater transparency, tailored data and closer oversight of performance, risk and capital deployment can quickly strain operating models built for a smaller or less diverse investor base.
Without scalable processes, consistent data and integrated reporting, growth can raise costs, increase operational risk and add pressure to internal teams. Managers need infrastructure that can absorb complexity without compromising control or the investor experience.
Specialist fund administrators can support onboarding, accounting, regulatory reporting and investor servicing across structures, asset classes and jurisdictions. This enables managers to meet rising demand while keeping internal teams focused on investment performance, fundraising and investor relationships. Cross-border fund ecosystems will also become increasingly important as German pension capital moves into private markets.
Luxembourg is Europe’s leading cross-border fund domicile and a major hub for alternatives. Preqin reported that 57% of European private capital raised in 2022 was domiciled there, up from 25% in 2017 and 8% in 2011. Our analysis of Preqin data indicates that its share remained around 50% in 2023, 2024 and 2025.
The jurisdiction also offers an established ecosystem spanning governance, administration, reporting, depositary services and investor servicing across private equity, private credit, infrastructure and real estate. For German managers and investors, that combination of regulatory certainty, institutional familiarity and operational expertise can support increased private markets participation.
Germany’s evolving pension strategy also aligns patient capital with the country’s long-term growth needs. Infrastructure, energy-transition projects and digital infrastructure all require sustained investment, and pension systems are among the market’s longest-term investors.
To realise that potential, Germany will need the right institutional frameworks, investment capabilities and operational infrastructure. For fund managers, the opportunity is access to a growing pool of patient capital. Capturing it will depend on serving a broader investor base efficiently, transparently and at scale.
As a leading, global specialist fund administrator in private markets, Aztec supports the growth story of all our clients by combining a high-tech, high-touch service model to support their ambitions. If you’d like to continue the conversation, please contact us directly.
You can read this article in German here.
28 September 2026 Tomas Tobolka
