UK and European pension funds are laying the groundwork to become a “far more significant” source of venture capital funding, according to a report published by Venture Connections, European Women in VC and Pensions for Purpose.
The report – Venture & growth capital in Europe – mapping pension funds’ attitudes – shows that Nordic pension funds are the most active, allocating around $400m to venture capital, with a strong home bias, keeping roughly 70% of that capital within their own markets.
France and the Benelux region follow, while Germany, Austria and Switzerland (DACH) are also making commitments.
By contrast, Southern and Central/Eastern Europe remain far behind, with regulatory barriers holding allocations to just $30m.
In the UK, allocations amongst defined contribution (DC) pension funds are still modest, with only 0.5% of assets going to venture capital, but policy initiatives such as the Mansion House Compact suggest that could change, according to the report.
The Compact, which launched under the UK Conservative government in 2023, commits participating DC pensions to the objective of allocating at least 5% of their default funds to unlisted assets by 2030.
| Region | Rank | VC allocation by local pension funds (USD) | Notable Details |
|---|---|---|---|
|
United Kingdom |
1 |
$4.05bn |
Workplace DC schemes only, source: Department for Work & Pensions; this represents 0.5% of assets |
|
Nordics (Denmark, Sweden, Norway, Finland, Iceland) |
2 |
$400m |
Around 70% stays within the Nordics; also attract c.$220m from foreign pension funds |
|
France & Benelux (France, Belgium, Netherlands, Luxembourg) |
3 |
$200m |
Over half of the venture capital comes from domestic pension funds |
|
DACH (Germany, Austria, Switzerland) |
4 |
$130m |
Majority of allocations are from within the region |
|
Southern & Central/Eastern Europe (Italy, Spain, Poland, Bulgaria, Romania) |
5 |
$30m |
Lowest allocation levels; regulation and market constraints hold back investment |
In terms of how pension funds shift their assets to venture capital, the report highlighted that investment is typically done as part of private equity mandates, not as a separate category. This, the report said, reflects a pragmatic governance decision, driven by limited international resources and a desire for simplified oversight.
The report noted that pension funds prefer to access venture capital via funds of funds, co-investments, and trusted managers rather than making direct investments themselves. No single model dominates, but each adds to their experience base.
The main attraction to venture capital for pension funds, according to the report, is the promise of long-term, risk-adjusted returns. In the UK and Western Europe, climate innovation and ESG goals are also emerging as strong motivators, it said, adding that diversification is seen as a way to manage the risks inherent in these investments, rather than a goal in itself.
The report added that pension funds lean toward later-stage venture capital deals with stronger track records, signalling a measured approach that fits their fiduciary obligations.
The main barriers for venture capital investment, according to the report, are limited in-house teams and heavy due diligence demands. However, it highlighted that partnerships and policy initiatives such as the UK’s Mansion House Compact suggest change is on the horizon.
The three organisations issuing the report are calling on UK and European pension funds to move from preparation to participation – by building internal capability, partnering with experienced venture capital managers and aligning allocations with long-term growth and climate innovation goals.
The trio does not advocate high-risk moves, but a measured, governance-friendly approach to venture capital, often via existing private equity frameworks and later-stage investments.
“Together, we can transform pension funds from passive investors into active builders of our economy”
Rachel Reeves, UK chancellor of the exchequer
Kinga Stanisławska, founder of European Women in VC, said: “Europe’s pension funds manage over €3trn, yet only a sliver reaches venture capital – where the next generation of climate, health and digital leaders are built.”
She said that this gap is a “major opportunity”, explaining that pension funds can engage at different levels of risk: from highly diversified fund of funds at the lower end, to growth and direct venture strategies for those ready to go further.
“With the right frameworks, venture is not just an ‘alternative’ but a source of diversification, resilient returns and long-term impact. By connecting patient pension capital with Europe’s innovators, we unlock a true win-win: secure retirements for members and the growth Europe needs to stay competitive,” Stanisławska noted.
Bruna Bauer, research manager for Pensions for Purpose, said that while allocations remain modest, the research shows that pension funds are moving from observation to preparation to invest in venture capital.
“By building in-house expertise, deepening relationships with managers and responding to new policy frameworks, they are laying the groundwork for a future where VC could become a meaningful part of pension portfolios – and a source of long-term capital for impact-driven sectors,” she said.
Rachel Reeves, UK chancellor of the exchequer, said: “Together, we can transform pension funds from passive investors into active builders of our economy: fuelling innovation, creating jobs, and unlocking stronger returns for savers while ensuring more capital also flows to the innovators too often overlooked.”
Reeves said that by unlocking institutional capital and backing more women-led and diverse businesses, pension funds can deliver growth that is both more dynamic and more inclusive.
“In doing so, we secure prosperity for tomorrow while providing security in retirement for today’s savers,” she said.
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