A handful of large pension investors allocate a quarter of their assets to domestic private markets and have added billions of economic gross value, a new report says. The findings are published by the investors amid government efforts to consolidate the pensions landscape and channel money to unlisted UK assets.

The report by WPI Economics, published last week, was commissioned by Border to Coast Pensions Partnership, Brightwell, Brunel Pension Partnership, Local Pensions Partnership Investments, Nest, Railpen and the Universities Superannuation Scheme, with additional support from the People’s Pension.  

The findings show the positive impact already being made by large pension funds in the UK, including the benefits to their members, the economy and society, argued Joe Ahern, WPI’s director of policy. 

“With these benefits in mind, it is important to be conscious of the potential unintended consequences that could flow from directing pension funds on how and where to invest,” he said. “Investment freedoms are key to these funds playing a strong role in society and in the economy while getting the right outcomes for pension savers.” 

The economics and policy consultancy estimates the funds and asset pools generated £71.3bn in total economic gross value added over a three-year period after investments are made, and 320,000 new jobs, via their investments into housing and infrastructure. The investors allocate £1 in every £4 to UK private markets, against £1 in every £9 for the rest of the sector, WPI suggests. 

It added that £37.4bn is invested in the UK corporate bond market by these pension providers, saving UK businesses £120m in the cost of capital per year. 

Key to achieving these benefits is the independence of pension funds in the UK, the report states, “which can efficiently allocate the assets under their management (AUM) in line with their fiduciary duties”. 

“Amid all the debate about how UK pension funds can support UK growth and investment, it is too often forgotten that asset-owning pension funds are already delivering significant impact across the UK,” said Laura Chappell, the chief executive of Brunel.

“We welcome the new WPI Report. Its analysis demonstrates what asset owners are already achieving in UK impact – and so points to the way forward,” she added. 

The interests of UK-based asset owners are aligned with domestic assets, and they already deliver a huge amount to the economy, said Brightwell CEO Morten Nilsson. 

“Consolidation and creating scale is key and is gathering pace in the industry. This will deliver far reaching benefits – but for these benefits to be fully realised, retaining independence to invest in the best way to meet the needs of members and savers, without intervention, is paramount,” Nilsson said. 

 

Rachel Elwell, CEO of Border to Coast, said the UK economy and wider society enjoys “huge benefits” from large pension funds using their scale and sophistication to invest for the long term.  

 

A USS spokesperson agreed: “Large pools of patient capital can be hugely valuable for the UK as a whole, providing companies and projects much-needed capital injections to support growth over the long term.”

The report comes as intense pressure is being applied on pension investors by Westminster – which hints at the possibility of mandation at regular intervals – to consolidate and allocate to UK private markets. The government argues that such investments will improve economic growth, as annual growth in the UK stood at 1.1% last year, with GDP growth stagnating at close to zero in the second half of 2024. However, the first quarter of this year saw an uptick with 0.7%, the highest among the G7 in that period.

Brunel is one of two Local Government Pension Scheme pools – the other being Access – whose partner funds have been told that the pool does not meet government requirements. The ministerial verdict that it cannot continue in its current form came ahead of a consultation response on the future of the LGPS and has left the two pools scrambling for options, with Brunel saying it will work with partner funds. 
 

   

 

The government is still due to respond to the LGPS consultation, as well as to another on defined contribution defaults, in which it proposed there should be a minimum size for multi-employer DC of potentially £25bn.  

In the meantime, it has intensified the push for private assets through a voluntary agreement to invest 10%, half of which in the UK, signed by 16 DC pension providers and funds. This expands a 2023 agreement to allocate 5% to private markets, which the signatories had failed to live up to a year later.   
 

 

Pension trustees and decision makers are generally opposed to a government diktat on where to invest, pointing to their fiduciary duty, but with the new Mansion House Accord some have agreed that they will move members’ money into such assets if the opportunities are attractive. Private markets can include a wide range of assets and structures, from directly held bricks and mortar to riskier things like private equity and venture capital held through funds.