Unlocking Pension Investment in UK Private Markets 

The UK doesn't have a pension capital problem. It has an investability problem. UK DC Schemes, in particular, will continue to scale at pace – requiring a different strategic mindset.    

Billions of pounds of long-term pension savings are available to back infrastructure, growing businesses and other forms of productive investment and many trustee boards and schemes, with the right capability, capacity and governance standards have made allocations to private markets, including UK allocations.      

The key next step is to translate allocations into execution – and put money to work for members.  The key challenge is around the sourcing of investable new opportunities and how easily pension schemes can access them.   

If we want more UK pension money flowing into private markets, the answer is not more political pressure, it’s about having an attractive, suitable and ‘visible’ pipeline of opportunities that trustees and asset owners can confidently invest in to enable the construction of appropriately diversified portfolios underpinned by strong governance and advice.     

A platform solution identified by the Lady Mayor and the City of London Corporation may have identified a real opportunity that can cut through the accessibility challenges and facilitate accelerated UK investment providing greater visibility – through InvestConnect.   

Access remains uneven 

Some of the UK’s largest schemes, including many in the LGPS, already have the scale and in-house expertise to run private market programmes by investing directly, consistent with the approach adopted by large pension scheme investors in other regions globally. That doesn’t equally apply to those that don’t yet have that scale and resource – particularly to ‘source’ UK opportunities.   

As DC consolidation continues, there’s an inevitable risk that access to more complex assets becomes concentrated among a small number of very large schemes. In general, the PMI believes scale will help deliver better outcomes for savers. But without addressing the visibility and access to a pipeline of new (not re-cycled existing) investments, capability and implementation constraints in these schemes, execution opportunities could remain limited. We also need to consider whether there are suitable routes and accompanying education for schemes and their boards.   

Governance and reporting are critical 

Private markets demand more from trustee boards than listed assets. They require greater due diligence with upfront work on objectives, suitability, pacing, diversification and liquidity, followed by ongoing monitoring that looks very different from public markets.  Implementation becomes a critical determinant of success in private markets.  

Reporting is also highly important. High-level or inconsistent information can make it difficult for trustees to understand fees, J curve effects, concentration, vintage diversification, liquidity terms or underlying exposures. The valuation cycle of private market assets also presents its own reporting challenges. 

The answer is to treat private markets as a programme rather than a purchase, with clear objectives, an operating model that aligns to the assets, and high-quality reporting that trustees can use effectively.  

Many opportunities in this space have longer time horizons and therefore need a structure and risk controls that not only withstand economic cycles and rotations of government policy but also provides options for liquidity as investment horizons shift. 

Different challenges for DB and DC 

In DB, many schemes are planning for run-on but may want to retain flexibility to benefit from endgame options particularly buyout. This can make long lock-ups and capital calls harder to accommodate. 

That does not rule out private markets. Assets with long-term, contractual or inflation-linked cashflows, such as infrastructure and certain forms of private credit, can work well when matched to a cashflow matching objective.  

In DC, providers have been building the operational and governance architecture to access private assets, but execution remains challenging. Fees and fee models, the J curve impact, sector and vintage diversification, governance and pricing all remain live issues – but can be managed with the right resource and oversight. 

The emerging Value for Money framework also needs to recognise timing. For example, early private equity allocations can depress short-term performance through the J-curve effect (where early capital calls and management fees can outweigh returns), even where long-term net returns can be relatively more attractive than other opportunities.  

Understanding the characteristics of private market investments is critical.  An inappropriate focus on short‑term performance metrics can distort decision making and disincentivise long term allocations to private market investments.  The proposed inclusion of forward-looking metrics in the framework is welcome as it’ll allow the expected returns to private assets to be considered under the assessment process. 

Investability  

Government wants to mobilise pension capital behind priorities such as growth, resilience and major infrastructure. The key will be investability and the ease of sourcing those opportunities.  Schemes need opportunities with the right characteristics that provide good vintage and sector diversification and attractive long term net returns – presented in a way that fits within their investment strategy and default arrangements. Implementation must also ensure fairness across member cohorts, particularly for DC, avoiding valuation approaches that materially advantage one group at the expense of another. 

More broadly, the UK has lacked the market infrastructure to help high-quality private companies and infrastructure projects attract institutional “growth capital” efficiently at scale.   

I agree with The Lady Mayor of London, Dame Susan Langley. Writing for CityAM earlier this year, she noted that only 7p of every £1,000 in a UK defined contribution pension goes into venture capital and wrote: “If we want to really free ourselves from the low-growth trap, we need to connect capital with projects that deliver real-world impact, housing, infrastructure, green energy and innovation. The money exists. The ideas exist. The targets exist. What’s missing is the mechanism to bring them together quickly and at scale.” 

A recent initiative led by the City of London Corporation is addressing one of the key challenges of connecting investable opportunities with pension funds and other institutions – by launching InvestConnect.  InvestConnect is an investor-led, AI enabled platform designed to connect global institutional capital with UK infrastructure, real asset opportunities and early-stage private market companies.  This has the potential to be the UK’s shop window of investable opportunities. 

Bronek Masojada, the forthcoming Lord Mayor of the City of London and successor to Lady Mayor Dame Susan Langley, told me: "this City of London Corporation led initiative will provide a real catalyst in connecting opportunity to investment – putting money to work, to grow the UK economy whilst growing UK pension members’ savings.  It’s a real win win.  Dame Susan Langley and our team identified a potential barrier and have put an effective solution in place.” 

Advice critical to success 

Another key catalyst or potential challenge is the provision of effective and efficient advice to Trustees on the investment in UK productive finance opportunities.  Trustees rely on independent advice when entering less liquid asset classes. Consultants, particularly for DC private markets, play a key role in unlocking the opportunity to invest. 

I’ve worked collaboratively with consultants on projects for early adopters at large DC schemes but we need to see a wider roll-out of high-quality advice to schemes of all sizes. The focus needs to be broader than just manager selection and include the more important questions of optimal governance around allocation, pacing and portfolio construction. Some schemes are responding by strengthening in-house governance and drawing on panels of specialist advisers, helping to improve scrutiny and reduce implementation risk.  

Schemes need better skills and a pipeline   

Three things now need to happen.  

1. Sector-wide capability building: so that trustees have the skills, confidence and effective governance oversight to design coherent programmes rather than selecting products late in the process.  Consultants play a critical role in translating opportunity into action – where relevant capability and capacity is key. Demand for specialist advice has grown rapidly, particularly in DC, reflecting how far the market has evolved.  
 
Value for money remains central to trustee decisions. Short‑term performance metrics can be misaligned with the long‑term return profiles of private markets, particularly where the J‑curve applies. Assessment frameworks need to reflect long‑term outcomes rather than discourage sensible investment through overly narrow metrics.  

Private markets are not a policy lever to be pulled. They are an investment programme to be governed. Get the plumbing right, and more schemes will participate and a broader and deeper market will be created, improving outcomes for savers and supporting a more productive UK economy.