Pensions and private capital industries: “It’s time to increase momentum on the Mansion House agenda”
New reports published by UK Private Capital with input from leading figures in the pensions and private capital industries state that it is time to begin accelerating investment by UK pension funds into private capital.
The two reports, UK DC Pensions & Private Capital: The State of the Market and LGPS & Private Capital: An Evolving Landscape assess progress over the past year across the defined contribution (DC) and Local Government Pension Scheme (LGPS) landscapes and outline measures which can further accelerate progress.
DC Pensions need to move from preparation to allocation
UK DC Pensions & Private Capital: The State of the Market finds that despite signs that pension funds intend to broaden their asset allocations, and some DC schemes having established new teams and structures for investment, evidence to-date indicates that actual allocations from default funds into private markets remain very low.
The most recent update of Mansion House Compact signatories found that as of February 2025, only 0.6% of assets under management by signatories were allocated to private markets, while a UK Private Capital survey of VC and growth equity firms could only identify two legally binding commitments. A further update from the ABI and Pensions UK is expected in Autumn; but with the ambition to reach significant allocations into private markets by 2030 now only a few years away, further action is needed.
The report highlights that as consolidation takes place, new routes and continued innovation to allow larger pension schemes to invest at scale without missing smaller opportunities will be needed. It recommends that a British Business Bank established fund-of-funds model would be helpful to many funds in achieving this scale, allowing them to benefit from the UK’s vibrant early-stage business ecosystem.
The DC report also calls for a greater alignment across the regulatory landscape, including on the FCA’s charge cap rules where the current status quo has different rules for the trust and contract landscapes. This has created barriers for pension funds seeking to invest in a wider range of UK growth assets via private capital funds.
The report sets out several recommendations to make investment into private capital easier:
- Government, regulators and industry should continue to focus on ensuring regulatory and other barriers are removed and momentum is retained on the Mansion House commitments.
- The British Business Bank should establish a fund-of-funds to enable more pension scheme investment into smaller venture capital and growth equity funds
- The FCA and DWP should ensure full alignment and a proportionate approach across all charge cap rules for the trust and contract landscapes.
- The FCA should review and alter the permitted links rules to maximise access options.
- The FCA and DWP should set up an industry working group to explore the issue in further detail, and come up with a set of proposals that ensure the consistent, fair and comparable disclosure of private capital fund costs.
LGPS must retain focus on regional growth
LGPS & Private Capital: An Evolving Landscape finds strong commitment across the system for supporting regional growth and maintaining investment in private capital but highlights ongoing challenges over local investment targets and investment ticket sizes.
It also notes that there is a significant opportunity for LGPS funds and pools to continue backing innovative UK businesses, but that flexibility and continued engagement across the market will be essential to ensure investment opportunities are not unintentionally restricted.
Recommendations from the LGPS report include:
- Pools should implement regional investment target ranges in a way that ensures the strong regional focus of many private capital funds is recognised and counted, even where private capital firms cannot guarantee a specific level of investment in one region or locale.
- Pools must consider how they can continue to make investments small enough to include lower- and mid-market private capital funds. The issue of size of investment remains a concern for private capital firms that have long, successful relationships with the LGPS, but are unlikely to be able to continue if minimum investment sizes grow significantly larger.
- Private capital firms should work with LGPS partners to ensure they can provide a wider range of impact metrics, beyond financial performance. As Partner Funds and Pools work with a wider range of stakeholders, demonstrating this impact will be even more important.
- All parties should consider the role innovation can play in accessing private capital opportunities. Innovative structures and routes to investment can assist the growing Pools to meet their investment ambitions. Examples of new approaches include initiatives like the Border to Coast UK Opportunities Fund, which has a specialist team that aims to ensure access to smaller private capital funds. Other innovative approaches may include greater focus on a framework for providing co-investment opportunities, and wider, customised partnerships between private capital firms and Pools.
“While progress has been made in creating the conditions for greater pension fund investment into private capital, this has yet to translate meaningfully into capital reaching growing businesses.
“These reports show there is much more to do. Ensuring pension providers achieve the scale needed to invest effectively and removing regulatory barriers will be critical to accelerating investment and enabling pension savers to benefit from stronger long-term returns and more diversified portfolios.”
“The UK is a world leader in intellectual property and company creation across technology, including deeptech, AI and quantum, life sciences and financial services. We also have one of the most advanced and innovative pension landscapes in the world.
“It is a missed opportunity that we have not made more progress to bring these two competitive advantages together in the interests of UK pension savers, UK business, and ultimately, to enable much needed growth. The opportunity to do so remains both necessary and compelling and speed is of the essence as generational shifts in technology reshape global economies and labour markets.”
“It is clear that, across the pensions and private capital worlds, there is a shared ambition that the emphasis on regional investment by the LGPS can and should be retained.
“But our panel raised concerns that, without care and some degree of flexibility over how this is achieved, some valuable cross-UK opportunities may be missed. We hope this report brings to the fore areas that require more work and consideration.”
Notes to Editors:
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About UK Private Capital
UK Private Capital is the industry body and public policy advocate for the private equity (PE), venture capital (VC) and private credit ecosystem in the UK. With a membership of 600 firms, we represent UK-based private capital firms, as well as their professional advisers and a large base of UK and global investors. The private equity, venture capital and private credit industry has a vital role to play in driving national and regional growth. Currently over 13,000 companies, employing more than 2.5 million people, are backed by private capital investment in the UK.
