UK pensions and private markets: the Mansion House Accord’s promise and perils

The recently unveiled Mansion House Accord, building on the 2023 Mansion House Compact, promises to be a game changer for the UK in directing investment into high growth British companies. The headline commitment is deceptively simple: 17 of the UK’s largest workplace pension providers, collectively representing 90% of active defined contribution savers, have pledged to allocate at least 10% of DC default funds to private markets by 2030. Half of this allocation—5% of total assets—must specifically target UK private assets. These have suffered from a lack of a natural UK investor, owing to the move towards liability-driven investing by the UK’s DB pension funds. But as the BVCA’s (British Private Equity & Venture Capital Association) UK Pensions Investment Summit in September revealed, the path from ambition to execution in terms of moving pension schemes to become an “active allocator to growth sectors, rather than an overly risk-averse saver” remains fraught with institutional, regulatory, and cultural obstacles.

The economic logic that is presented can be compelling. Michael Moore, BVCA’s CEO, pointed out that the 13,000 UK businesses backed by private capital employ over 2.5m people. He argues that private equity, “through long’term, productivity enhancing active ownership” has a track record that “shows that it’s not only good for those who invest in businesses, the people who work in them, but also good for the economy and the communities in which these businesses are based as well”. For pension savers, this translates into accessing what industry participants describe as “higher potential net returns” that are nòunavailable in traditional public markets.

This productivity argument resonates strongly in the current economic climate. The UK has struggled with anaemic productivity growth for over a decade, while its pension funds have historically been underinvested in domestic assets compared to international peers. The Accord represents a direct attempt to address both challenges simultaneously—a rare alignment of private interests and public policy objectives.

Changing the narrative

However, implementing this vision requires what Emma Douglas, wealth policy director at Aviva described as a “fundamental cultural shift” within the pensions industry. Her observation, derived from speaking to Australia’s Super Funds, cuts to the heart of the challenge: “people don’t retire on low fees—they retire on returns.”

The UK pension sector has, for quite understandable reasons, focused on prioritizing fee minimization over return maximization. That creates issues for PE/VC investment, where fees are high, perhaps unnecessarily so in many cases, but still need to cover the high costs of undertaking very active due diligence and management.

This cultural inertia extends far beyond pension providers themselves. The entire ecosystem—consultants, employers, procurement departments, and trustees—has developed reflexes that favour the familiar and measurable over the potentially transformative. Breaking this cycle requires what Douglas termed a “big narrative change,” moving industry participants from obsessing over “a few basis points” in fees to focusing on “percentage points extra” in member outcomes.

The fiduciary duty framework adds another layer of complexity. Trustees, legally obligated to act in members’ best interests, have understandably interpreted this conservatively, favouring liquid, transparent investments over the more complex world of private markets. Maria Busca, responsible for long-term savings policy at the Association of British Insurers (ABI) acknowledged that “meaningful progress cannot happen without addressing these critical enablers, recognising that regulatory and cultural change must proceed in tandem.

Perhaps the most fundamental structural challenge relates to scale. Private market investments require significant due diligence capabilities and dedicated specialist teams—resources that fragmented UK pension schemes have historically lacked. The Mansion House Accord implicitly recognises this through its emphasis on consolidation. These proposed “megafunds” represent more than administrative efficiency gains. They offer the prospect of pension schemes operating with the institutional heft necessary to access the best private market opportunities on competitive terms. The Long-Term Asset Fund (LTAF) structure provides another piece of this infrastructure puzzle, offering a mechanism for DC schemes to access illiquid assets while maintaining necessary liquidity buffers.

ESG and the younger generation

Unsurprisingly, ESG positioning is also a factor that is becoming of increasing importance, reflecting more than regulatory compliance or moral positioning, particularly with the younger generation just entering the workforce. Their relationship with pensions presents both challenges and opportunities. While often characterised as disengaged, the evidence suggests they are more accurately described as disillusioned with systems that feel misaligned with their values.

This generation’s emphasis on “the consequence of what you do, not just how much money you make” creates opportunities for pension providers willing to offer solutions that deliver both returns and impact. As Lucy Mills, a partner at NorthEdge articulates, focusing on material sustainability factors helps companies “attract the very best talent,” “hold pricing power,” and “build more resilience.” This perspective reframes ESG not as a constraint on returns but as a potential source of competitive advantage.

Private capital’s active ownership model offers particular advantages in this context. Unlike passive public market investors, private equity and venture capital firms can directly engage with portfolio companies to improve ESG performance, potentially enhancing long-term value creation. This hands-on approach aligns with the growing recognition that sustainability considerations are “hard and absolutely part of your investment process,” as Michael Marshall, director of sustainable risk & investment ownership at Railpen argues.

Yet, significant barriers remain. Financial pressures from housing costs and student loans make long-term saving a lower priority for many young people. Additionally, traditional pension communication methods poorly serve “digital natives” accustomed to transparency and instant information access.

Bold policy intervention

Whilst discussions on the implication of the Mansion House Accord continue encompassing controversial issues such as whether the allocations to private assets should be mandated or not, Dame Anne Glover, CEO and co-founder of Amadeus Capital made the call for “urgency”, reflecting the temporal mismatch between policy implementation cycles and market opportunities. The UK finds itself amidst a major technology wave that will shape economic structures for decades, but “these investment opportunities are emerging now, they are not going to wait.” This temporal pressure adds weight to the view of Gregg McClymont, former Labour Shadow Pensions Minister, and now a director of IFM Investors, that the government’s approach is “reasonable and pretty radical actually.” The Mansion House Accord represents an unusually bold policy intervention, but its ultimate success depends on the industry’s ability to convert “ambition into action and commitments into capital.”

The journey ahead requires sustained collaboration between pension funds, private capital firms, and government to overcome entrenched obstacles. UK DC pension funds can and perhaps should take a more active role in investing in the UK’s economy through private equity and venture capital. But the oft-repeated phrase by PE market practitioners that the wide dispersion of PE/VC fund returns means that pension funds need to ensure they only invest in top quartile managers seems both self-serving and somewhat ridiculous. For the average pension fund to be comfortable with investing in PE/VC, they need to be confident that the average returns after fees makes the investments attractive. Assuming anything else will prove to be very disappointing for the half of the market whose returns will be below average. That is a challenge that the private equity and venture capital industry needs to address.