The Scottish Borders Council Pension Fund and M&G’s With Profits Fund have committed £130m to a new UK social investment fund, to which manager M&G said it will also “channel” capital from its life insurance business and the British Business Bank. The BBB has already committed $100m (£74m) to a further new vehicle by M&G.

The asset manager hopes to attract further investments from other long-term investors, such as defined contribution schemes, endowments and charities.

Managed by M&G’s private markets arm, the UK Social Investment Fund will focus on urban regeneration, affordable homes, clean energy and essential infrastructure. Early pipeline opportunities include partnering with local authorities and registered providers to deliver purpose-built accommodation for young care leavers and additional affordable housing, the manager noted.

As well as the UK Social Investment Fund, M&G said its Catalyst Growth Equity Fund has secured commitments of more than $850m (£633m), including $100m from the British Business Bank, as well as capital from M&G’s With Profits Fund and other institutional investors, subject to a legal close of the fund. Catalyst invests in private companies in the UK and internationally, often university spinouts, with the aim of delivering both financial returns and measurable social and environmental impact.

Chancellor Rachel Reeves backed the commitments, saying: “This investment is exactly what our pensions and investment reforms are designed to unlock. Billions of pounds to build the homes, infrastructure and invest in innovative businesses that will power Britain’s next decade of growth.”

Cllr David Parker, who chairs the Pension Fund Committee looking after the Scottish Borders Council Pension Fund, said the M&G UK Social Investment Fund will provide a boost to the UK economy.

“The pipeline of projects within the fund will make an enormous difference to many communities, and the quality of the projects that will be financed is extremely impressive. SBC have no doubt that M&G’s strong track record of delivery will make a huge difference to the whole of the UK,” he said.

The Scottish LGPS is regulated by the Scottish government and not currently required to pool or make local investments.

The chief executive of the British Business Bank, Louis Taylor, argued that investing in UK ventures will pay off in the long term. Taylor said: “There are significant untapped opportunities in the UK’s unlisted companies, and our domestic institutions should be looking to increase allocations to this asset class. Our new platform, Venture Link, will help to pave the way for institutional investors by increasing visibility of live investment opportunities like this one.”

The government is legislating to require local authority pension funds in England and Wales to pool all assets by March this year – amid much criticism – and allocate to ‘local’ investments, which many LGPS funds already do.

It is also giving itself a temporary power to force defined contribution schemes, whose assets are owned by savers, into investments which the current ministers – none of whom have an investment background – deem relevant from an economic and social policy side, such as UK private markets.

Industry representatives have highlighted that herding asset owners into particular investments risks distorting capital markets, and pointed out that the sunset clause ends after the next election, leaving it open how a future government would use the mandation power.