Travers Smith's Venture Insights: Unlocking Pension Investment in Venture

The message from Dame Anne Glover at Travers Smith's 5th annual Alternative Insights Summit last month was direct: UK pension funds should invest more in early-stage venture and growth stage capital. The figures certainly support that view. According to the 2025 report by the State of European Tech, UK and Irish pension funds invested "a staggeringly low" 0.001% of AUM in European venture capital in 2024. That means pension savers are missing out on the returns that backing high growth technology businesses can generate (and in which pension schemes might previously have participated when such companies listed sooner).

The strategic logic is compelling. Pension funds are natural long-term investors and could benefit from these returns across multiple investment cycles. The liabilities of defined benefit (DB) schemes can stretch over decades. Most members' UK defined contribution (DC) schemes are decades away from retirement. VC fits that time horizon well. And UK venture needs the capital – domestic institutional money runs thin at the growth stage.

The UK government is backing industry initiatives and reforms to boost pension investment in private markets, including VC. The first thing to acknowledge is how central the UK government-backed British Business Bank (BBB) is to many of these initiatives. It anchored the British Growth Partnership Fund I, which reached a first close of £200 million in April 2026, drawing in commitments from Aegon UK, Cushon Master Trust and M&G.

It has just been announced that the BBB is working with another consortium of UK pension schemes, including Nest (the largest workplace pension fund in the UK and which is investing in venture, recently launching its own dedicated VC sleeve) and the Local Government Pension Scheme, to explore the establishment of a UK Scale-up Fund. That's as well as Venture Link, the BBB's online portal sharing information about the VC funds it supports. UK Private Capital is also urging BBB to support its New Opportunities for Venture and growth Acceleration proposal (NOVA), which would create a fund accreditation process and systems to connect pension investors with VC and growth funds and modelled on the French Tibi scheme.

On the industry side, under the Mansion House Accord, 17 DC pension providers in the UK have pledged to invest at least 10% of their main default funds in private assets by 2030, with at least 5% in the UK. The UK government estimates this could unlock around £50 billion of additional private market investment. The Sterling 20 group, 20 of the UK's largest pension schemes and insurers, is working with the government and the City of London Corporation to direct capital into infrastructure and fast-growing businesses in key sectors such as AI and fintech.

The Pension Schemes Act 2026 will drive consolidation across both DC schemes and the Local Government Pension Scheme. Scale matters: it should bring bargaining power on fees, better access to funds and the capacity to build the in-house expertise that private markets investing demands. The Act includes a power to mandate investment in private assets if voluntary commitments fall short, subject to safeguards.

The UK is not alone in pushing this agenda. Other European policymakers are also driving further reforms. FIVE (Financing Innovative Ventures in Europe), a Franco-German initiative, is part of a series of recommendations on improving access to late-stage financing for innovative European companies. The European Parliament, reflecting FIVE's recommendations, has proposed that European occupational pension funds with AUM of more than €1 billion be required to invest at least 2% of their assets in VC investments. There is also the EU's Scaleup Europe Fund, a multi-billion fund, which will be managed by EQT. The fund (which hasn't yet held a first close) will make investments in promising European companies in strategic tech areas.

But four key obstacles remain – the charge cap, disclosure requirements, managing liquidity and the critical issue of manager selection.

The charge cap is a mandatory cap on the level of charges that certain pension schemes can charge members in their default funds. This is set at 0.75% p.a. of funds under management (or an equivalent combination charge). The rules specifying which costs count towards the cap were designed with public markets in mind. Recent changes offer some flexibility – there's now a carve out for 'well-designed performance fees', which encourages a shift in focus from "cost" to "value". Even if this were fixed, though, DC schemes currently tend to compete on very low management fees – often below the statutory cap. The way DC schemes think about, and disclose, fees incurred in relation to investments may need to change.

DC schemes also face prescriptive disclosure requirements concerning investment performance and charges, and the current rules will be bolstered further by an enhanced value for money regime being introduced for DC schemes. Whilst DC trustees and regulators need to reflect on how they disclose investment fees, sponsors may need to adapt their financial and governance reporting to cater to DC schemes' needs.

Despite a long-term horizon, managing liquidity can still be a challenge for pension funds. VC funds tie up capital for years. Pension funds need to meet the liquidity needs of their members, and some DB schemes may be looking to liquidate their private asset holdings in readiness for paying the premium on a future buy-out with an insurer. The UK regulator's (the FCA's) permitted links rules govern what insurance-wrapped pension products can invest in and these have historically restricted investment in illiquid assets by DC schemes. New fund structures, including the UK long-term asset fund (LTAF) designed with DC schemes in mind, are emerging to bridge this gap, and reforms to the permitted links rules have also made it easier for schemes using insurance platforms to access private markets through LTAFs. The growing scale of DC master trusts also provides new opportunities to manage liquidity.

But here is the tension policymakers cannot resolve by legislation alone. European policymakers want more pension fund capital deployed into the domestic economy and more in productive capital. The policy momentum is genuine, and the commercial opportunity is real. Yet pension fund trustees are, rightly, focused on investments which meet their risk/return profile – considering the evidence base for risk adjusted returns, after fees. The public markets provide trustees with a detailed evidence base to judge risks and reward. In the private markets, it is manager selection that is critical to returns, and access to high-performing managers can be competitive. There's still more for sponsors to do to support trustee decisions by delivering better and more reliable information on return profiles and finding ways to de-risk the investment process.

UK DC pension funds still lag behind Canada and Australia, whose large pension funds have been investing in private markets for decades, supported by well-developed in-house investment functions. The combination of scale from consolidation, better market infrastructure and transparent reporting could change that.