UK pension funds launch £1bn scale-up investment drive

Nest, Railpen, and three Local Government Pension Scheme pools have announced plans to combine resources for a £1 billion fund dedicated to supporting UK businesses at the scaling stage, following a government statement on July 27. The move represents an effort to redirect pension investments away from overseas markets—particularly the US—and toward domestic companies in science and technology sectors. The British Business Bank will assist in matching investors with suitable opportunities.

Prime Minister Andy Burnham positioned the initiative as part of broader economic strategies to “reindustrialise Britain” by tying pension capital to job creation and entrepreneurial growth. Chancellor John Healey stressed the importance of retaining economic activity within the UK, framing the fund as a tool to make the country a leading destination for business expansion. The announcement follows years of advocacy from pension funds for a dedicated scale-up vehicle.

Railpen, which oversees £34 billion in assets, has long pushed for such a fund. In December, its head of UK productive assets, Julia Diez, identified key obstacles in the UK’s venture and growth equity markets, including persistent illiquidity and insufficient long-term funding. She noted that the sector’s fragmentation made it difficult for domestic companies to access consistent support from local investors. The new initiative aims to address these gaps by consolidating institutional capital.

Nest, the UK’s largest workplace pension provider, confirmed earlier this month that it would allocate up to £1 billion to venture capital strategies through a partnership with Schroders Capital. The three participating LGPS pools, Border to Coast Pensions Partnership, Local Pensions Partnership Investments, and LGPS Central, will collaborate with Nest and Railpen to formalise the fund’s structure.

Secretary of State Jonathan Reynolds, leading the newly formed Department of Business, Innovation, Science and Trade, described pension schemes as key drivers of long-term economic growth, particularly if investments align with savers’ interests. However, industry experts have raised concerns about potential risks. Elisabeth Storey, head of pensions at RSM UK, warned that trustees must carefully balance growth-oriented allocations with their fiduciary responsibilities. She emphasised the need for robust governance, expert oversight, and a clear investment rationale to justify increased exposure to scaling businesses.

Despite these cautions, industry leaders have expressed optimism. Michael Moore, CEO of UK Private Capital, praised the fund as a step toward filling a long-standing capital gap in UK markets. He encouraged more defined-contribution pension schemes to participate in venture and growth funds. Executives from the participating funds echoed this sentiment, highlighting the potential to align financial returns with broader economic benefits.

The UK’s venture capital sector has historically depended on foreign investment, particularly from the US, to fund its most promising startups. While the country produces innovative companies, many struggle to secure the long-term capital needed to expand domestically. If successful, this fund could reverse that trend by channeling institutional capital into early-stage and growth-phase businesses. The primary challenge will be ensuring the governance and expertise exist to justify the risks to pension savers.