The challenge is ensuring domestic DC pension capital participates in the growth of British businesses.
The debate around UK productive finance often starts from the assumption that UK pension schemes are struggling to find attractive domestic investment opportunities.
Industry experts at PMP’s Defined Contribution Forum offered a different perspective. It is not that the UK lacks investable businesses, infrastructure projects or growth companies. Rather, it is that too much of the capital backing those opportunities continues to come from overseas investors.
As defined contribution (DC) schemes began implementing their Mansion House commitments, policymakers focused on directing pension capital towards UK growth. However, several panellists argued the domestic investment case is already strong enough to stand on its own merits.
David Merton, head of portfolio management at Fulcrum Alternative Solutions, pointed to a series of recent investments as evidence that attractive opportunities remain plentiful. His team recently invested in Oxford Quantum Circuits, which he described as one of the largest Series C quantum computing fundraisings in Europe, while other investments have included fintech business Moneybox and a range of UK venture and growth equity opportunities.
“We’ve done 10 deals in total, eight of them in the UK,” he said. “We’re a global business… but we’re seeing really, really great deals here.”
Merton argued that UK assets continue to trade at a meaningful discount to their US counterparts. “I’m yet to see a UK deal that is more expensive than a US one,” he said.
Pointing to Moneybox as an example, he noted that the business was growing faster than comparable US peers while trading on a materially lower valuation multiple. “There’re examples of that all over the market that we think the UK is really, really interesting.”
Joanne Bugg, head of manager selection at Future Growth Capital, expressed a similarly positive view. “We are super bullish on the UK growth opportunity,” she said.
Future Growth Capital was created following the Mansion House reforms and offers both a UK-focused LTAF and a global ex-UK strategy. The business now manages £2.5 billion and has built a portfolio spanning private credit, infrastructure, venture capital and growth equity.
Part of Bugg’s confidence stems from the firm’s experience building dedicated UK investment vehicles. Bugg highlighted the UK Innovation LTAF, which combines capital from Standard Life and the British Business Bank to invest in venture capital, direct investments and secondaries. Early performance, she said, had been stronger than many investors expected. “That vehicle has busted a lot of the myths about venture capital. The early performance has been incredibly strong.”
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Yet despite the optimism around the UK opportunity set, several speakers suggested that domestic businesses continue to rely too heavily on overseas capital as they scale.
Merton cited Oxford Ionics as an example. The Oxford-based quantum computing company attracted interest from UK investors, but much of the funding came from abroad before the business was ultimately acquired by US-listed IonQ. Similar patterns can be seen across the UK technology sector, he argued.
“Revolut is a fantastic UK business,” he said. “[But just] 10% of its cap table is UK because we just don’t fund past the early stages.”
The issue is not necessarily a lack of innovation, it is a lack of domestic capital available to support businesses as they mature. “The US has something that we don’t,” Merton said. “The pension fund market is really funding those ideas and getting the benefit of them.”
This point has become central to the productive finance agenda. Greater pension fund participation could help retain more of the economic benefits generated by successful UK businesses while also improving retirement outcomes.
Merton pointed to research suggesting that every pound invested in venture capital can generate multiple times that amount in broader economic activity through wages, tax revenues, research and development spending and productivity gains. “There are ancillary benefits which I think could really help with the productivity issue,” he said.
[L-R Martin Dietz, David Merton and Joanne Bugg]
However, despite the enthusiasm for UK opportunities, speakers were equally clear that domestic investment should not come at the expense of fiduciary duty.
Martin Dietz, head of diversified strategies, asset allocation, at Legal & General, argued that the UK firm’s exposure was driven by investment considerations rather than government targets. Legal & General’s default strategy, which manages more than £25 billion, already meets the Mansion House requirements, but Dietz rejected the idea that the reforms were dictating portfolio construction. “Mansion House is not a constraint,” he said.
Instead, he pointed to a range of practical advantages associated with investing in domestic private markets, including stronger market access, lower currency risk and simpler structures. For Legal & General, UK allocations have emerged naturally from the investment process rather than through any attempt to meet a policy objective. “It’s all based on finding the right ideas and focusing on the member first of all,” he said.
Dietz also warned against assuming that every part of the productive finance agenda should be pursued aggressively. Venture capital remains attractive, but it is also expensive and operationally intensive. The highest-quality managers often charge traditional ‘two and twenty’ fee structures and require significant hands-on involvement with portfolio companies. “Great ideas don’t necessarily make good investments,” he said.
For that reason, Legal & General has pursued a broader multi-asset approach, combining selective venture capital exposure with investments in areas such as data centres and affordable housing.
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The discussion also highlighted growing confidence that private markets allocations could move significantly beyond current Mansion House targets.
Bugg said Future Growth Capital’s long-term planning assumptions already envisage a substantial increase in allocations over the next decade. She suggested that private markets allocations of around twice the suggested size could become commonplace within DC portfolios: “We see 20% of portfolios in private markets as a good number, leading to around 20% higher pots at retirement.”
Merton offered a similar perspective, noting that many of Fulcrum’s existing clients already allocate around 15% of their portfolios to private markets and further increases appear likely.
The panellists resisted the idea that government intervention is needed to create opportunities for investors. Asked what policymakers should do to encourage greater domestic investment, Dietz’s response was simple. “I don’t actually have a wish list,” he said. “The government has created structures. There’re no excuses for any provider to not have private markets.”
For him, the challenge now lies less in policy design and more in proving that the new generation of DC private markets strategies can deliver on their promises. “What’s really important now is making it work, producing positive returns so that in two or three years’ time people are looking at this and say it was worth it and it has added value.”
While debate continues around Mansion House, productive finance and domestic investment targets, speakers repeatedly returned to the same conclusion: the UK opportunity set is deeper than many critics assume.